COMMISSION FILE NO. 2-44872
================================================================================
                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 20-F
                ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
                       THE SECURITIES EXCHANGE ACT OF 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2002
                      -------------------------------------

                                 ELSCINT LIMITED
            (Exact name of Registrant as specified in its charter and
                 translation of Registrant's name into English)

                        ---------------------------------

                                     ISRAEL
                 (Jurisdiction of incorporation or organization)
                     13 MOZES STREET, TEL AVIV 67442, ISRAEL
                    (Address of principal executive offices)

                         ------------------------------

          Securities registered or to be registered pursuant to Section
                               12(b) of the Act:

        TITLE OF EACH CLASS            NAME OF EACH EXCHANGE ON WHICH REGISTERED
ORDINARY SHARES, NOMINAL VALUE 0.05             NEW YORK STOCK EXCHANGE
   NEW ISRAELI SHEKELS PER SHARE

 SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

       ORDINARY SHARES, NOMINAL VALUE 0.05 NEW ISRAELI SHEKELS PER SHARE
                                (Title of Class)

              Securities for which there is a reporting obligation
                     pursuant to Section 15(d) of the Act:

       ORDINARY SHARES, NOMINAL VALUE 0.05 NEW ISRAELI SHEKELS PER SHARE
                                (Title of Class)
                 -----------------------------------------------

Indicate the number of  outstanding  shares of each of the  issuer's  classes of
capital  or common  stock as of the close of the  period  covered  by the annual
report: 16,690,643

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days: YES [X] NO [ ]

Indicate by check mark which financial statement item the registrant has elected
to follow: ITEM 17 [ ] ITEM 18 [ ]

================================================================================


<PAGE>



                                Table of Contents
                                                                            Page

PART I.........................................................................1

ITEM 1. -- Identity of Directors, Senior Management and Advisors...............1

ITEM 2. -- Offer Statistics and Expected Timetable.............................1

ITEM 3. -- Key Information.....................................................1

Selected Financial Data........................................................1
Exchange Rates.................................................................6
Forward Looking Statements.....................................................6
Risk Factors...................................................................7
Our ownership rights in the Bucuresti Hotel have been challenged..............12

ITEM 4. -- Information on the Company.........................................18
Summary.......................................................................18
Strategy......................................................................19
Highlights of 2002............................................................22
Business Overview.............................................................24
Competition...................................................................28
Seasonality...................................................................29
Government Regulation.........................................................30
Principal Capital Expenditures and Divestitures...............................32
Principal Capital Expenditures and Divestitures Currently in
   Progress or Planned........................................................35
Organizational Structure......................................................35
Property, Plant and Equipment.................................................36

ITEM 5. -- Operating and Financial Review and Prospects.......................39
General.......................................................................39
Operating Results.............................................................43
Liquidity and Capital Resources...............................................46
Loans.........................................................................48
Trend Information.............................................................52
Impact of Devaluation on Results of Operations and on Monetary
    Assets and Liabilities....................................................52

ITEM 6. -- Directors, Senior Management and Employees.........................53
Directors and Senior Management...............................................53
Compensation of Directors and Management......................................55
Board Practices...............................................................55
Employees.....................................................................56
Share Ownership...............................................................57

ITEM 7. -- Major Shareholders and Related Party Transactions..................57
Related Party Transactions....................................................59

ITEM 8. -- Financial Information..............................................60
Consolidated Statements and Other Financial Information.......................60

                                       -i-
<PAGE>


                                TABLE OF CONTENTS
                                   (continued)
                                                                            Page


Legal Proceedings.............................................................60
Dividends.....................................................................64

ITEM 9. -- Offer and Listing..................................................65

ITEM 10. -- Additional Information............................................66
Memorandum and Articles of Association........................................66
Material Contracts............................................................74
Exchange Controls.............................................................74
Taxation......................................................................75
Documents on Display..........................................................81

ITEM 11. -- Quantitative and Qualitative Disclosures About Market Risk........81

ITEM 12. -- Description of Securities Other than Equity Securities............87

PART II.......................................................................87

ITEM 13. -- Defaults, Dividend Arrearages and Delinquencies...................87

ITEM 14. -- Material Modifications to the Rights of Security Holders
     and Use of Proceeds......................................................87

PART III......................................................................87

ITEM 15. - controls and procedures............................................87

ITEM 16. -- [RESERVED]........................................................88

ITEM 17. -- Financial Statements..............................................88

ITEM 18. -- Financial statements..............................................88

ITEM 19. -- Exhibits..........................................................89



                                      -ii-
<PAGE>


CURRENCY TRANSLATION

         For the reader's convenience only, some financial  information has been
translated  from New Israeli  Shekels  ("NIS"),  to the U.S.  dollar,  using the
representative  exchange  rate as published by the Bank of Israel as of December
31, 2002 ($1.00 = NIS 4.737).  The dollar amounts reflected in these convenience
translations  should not be construed as representing  amounts that can actually
be received or paid in dollars or  convertible  into dollars  (unless  otherwise
indicated),  nor do such convenience  translations mean that the NIS amounts (i)
actually  represent the  corresponding  dollar amounts stated,  or (ii) could be
converted into dollars at the assumed rate. The Federal Reserve Bank of New York
does not certify for customs  purposes a noon buying rate for cable transfers in
NIS.  Therefore,  all  information  about exchange rates is based on the Bank of
Israel rates.

         In addition,  certain  information with respect to other currencies has
been translated,  for the reader's  convenience  only, into NIS and U.S. dollar,
using the representative exchange rates as published by the Bank of Israel as of
December 31, 2002.

PART I
------

         ITEM 1. -- IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

         Information not required in an Annual Report on Form 20-F.

         ITEM 2. -- OFFER STATISTICS AND EXPECTED TIMETABLE

         Information not required in an Annual Report on Form 20-F.

         ITEM 3. -- KEY INFORMATION

SELECTED FINANCIAL DATA

         The selected  financial  data of Elscint  Limited and its  subsidiaries
(together,  "Elscint",  the "Company",  "our Company",  "we" or "us") is derived
from our 2002 Consolidated  Financial Statements and is set forth below in table
format. The 2002 Consolidated  Financial  Statements were prepared in accordance
with Israeli generally  accepted  accounting  principles  ("Israeli GAAP"),  and
audited by Somekh Chaikin, a firm of certified public accountants in Israel, and
a  Member  Firm of KPMG  International,  except  for  certain  subsidiaries  and
affiliates which were audited by other auditors.  This report includes a copy of
the 2002 Consolidated  Financial  Statements,  related notes and other financial
information  included  therein which you should read together with the following
table.  Since October 1, 1999 our financial  statements have been prepared under
Israeli GAAP.

         The data presented in this report includes  information for 1998, 1999,
2000,  2001 and 2002  stated in values  adjusted  for the change in the  general
purchasing power of the Israeli currency. The 1998 information has been restated
in order to reflect the changes in the accounting  principles  from U.S. GAAP to
Israeli GAAP. The 2002  information is presented in NIS as well as a convenience
translation to U.S. dollars.

         As of the balance  sheet date,  the Company and its  subsidiaries  have
been engaged in the following businesses:

            o     Ownership,  management  and operation of hotels,  primarily in
                  major European cities.

            o     The  establishment of the  entertainment and commercial center
                  at the Herzlia Marina.

            o     Investment in a bio-technology company.

         Upon  consummation  of the  sale  of the  sub-assembly  and  components
division as of December  31,  2002 (See "Item 4 -  Information  on the Company -
Highlights  of 2002"),  the  activity  of the  Company in the  sub-assembly  and
components segment in particular and in the medical imaging area, in general was
discontinued.  As a result,  the  assets  and  liabilities  which  relate to the
discontinued  operations  were  included in separate  categories  in the balance
sheet  under  "assets/liabilities   relating  to  discontinuing  operation".  In
addition,  the transactions and cash flows relating to the aforesaid  operations
were  included  in a separate  category in the  statement  of  operations  under
"income from  discontinuing  operation" and in the statement of cash flows under
"cash flows related to discontinuing  operation"  respectively.  The comparative
figures for prior years were reclassified in order to reflect, retroactively for
all reported years, presentation of the assets, liabilities,  revenues, expenses
and cash flows that relate to the discontinued operations, separately from those
that relate to the continuing operations.

SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
INCOME STATEMENT DATA:                                                Year ended December 31,
                                               --------------------------------------------------------------------
                                                                                                                    Convenience
                                                                                                                     translation
                                                                                                                    December 31,
                                                       2002         2001         2000         1999          1998    2002
                                               ------------  -----------    ---------   ----------     ---------    ---------------
                                                                                                                      $(thousands,
                                                                    Adjusted NIS (thousands,                            except per
                                                                     except per share data)                            share data)
                                               -------------------------------------------------------------------- ---------------
Revenues
<S>                                                 <C>          <C>          <C>           <C>        <C>                 <C>
Operating and managing hotels                       210,650      141,898      108,088       27,765               -          44,469
Revenue from long term contracts                      1,538       10,221       20,367            -               -             325
                                               ------------  -----------    ---------   ----------     -----------  ---------------
                                                    212,188      152,119      128,455       27,765               -          44,794
                                               ------------  -----------    ---------   ----------     -----------  ---------------
Cost of revenues

Hotel operations                                    135,766       97,692       69,924       19,677               -          28,661
Cost of long term contracts                           1,419        7,451       18,244            -               -             300
                                               ------------  -----------    ---------   ----------     -----------  ---------------
                                                    137,185      105,143       88,168       19,677               -          28,961
                                               ------------  -----------    ---------   ----------     -----------  ---------------

Gross profit                                         75,003       46,976       40,287        8,088               -          15,833
Hotel depreciation, amortization and
  operation expenses                                 62,685       32,156       23,124        5,993               -          13,233
Initial expenses, net                                 1,807        4,036        1,848            -               -             381
General and administrative expenses                  32,181       26,285       23,709       12,405               -           6,794
                                               ------------  -----------    ---------   ----------     -----------  ---------------

Operating loss                                     (21,670)     (15,501)      (8,394)     (10,310)               -         (4,575)
Finance income (expenses), net                       13,051       66,344     (20,599)       27,496               -           2,755
Other (expenses) income, net                       (21,915)     (13,366)        2,667        1,440               -         (4,626)
                                               ------------  -----------    ---------   ----------     -----------  ---------------

(Loss) Income before income taxes                  (30,354)       37,477     (26,326)       18,626               -         (6,466)

Income taxes (benefit)                              (5,321)        5,486        4,723       16,003               -         (1,123)
                                               ------------  -----------    ---------   ----------     -----------  ---------------

(Loss)  Income after income taxes                  (25,213)       31,991     (31,049)        2,623               -         (5,323)
The  Company's share in loss of affiliated
  companies                                           2,902        9,899        3,302          832               -             612
Minority interest in loss of a subsidiary, net          896        1,313            -            -               -             189
Net income (loss) from continuing operations        (27,219)      23,405      (34,351)       3,455               -          (5,746)
                                               ------------  -----------    ---------   ----------     -----------  ---------------

Net income (loss) from discontinuing
 operations                                          90,693       34,587       77,940      (5,394)         132,927          19,146
                                               ------------  -----------    ---------   ----------     -----------  ---------------
Net income (loss)                                    63,474       57,992       43,589      (1,939)         132,927          13,400
                                               ============  ===========    =========   ==========     ===========  ===============

                                      -2-
<PAGE>
INCOME STATEMENT DATA:                                                Year ended December 31,
                                               --------------------------------------------------------------------
                                                                                                                    Convenience
                                                                                                                     translation
                                                                                                                    December 31,
                                                       2002         2001         2000         1999          1998    2002
                                               ------------  -----------    ---------   ----------     ---------    ---------------
                                                                                                                      $(thousands,
                                                                    Adjusted NIS (thousands,                            except per
                                                                     except per share data)                            share data)
                                               -------------------------------------------------------------------- ---------------

Basic (loss) earnings per ordinary share
   (NIS 0.05 par value):

Continuing operations                                 (1.63)        1.40       (2.06)        0.20                -         (0.34)

Discontinuing operations                               5.43         2.07         4.67      (0.32)             8.02          1.15
                                               ------------  -----------    ---------   ----------     -----------  ---------------
                                                       3.80         3.47         2.61        0.12             8.02          0.81
                                               ============  ===========    =========   ==========     ===========  ===============

Weighted average number of ordinary shares
   (NIS 0.05 par value) in the computation
   of basic earnings per share                   16,690,643   16,690,643   16,690,643   16,649,683      16,682,200      16,690,643
                                               ============  ===========    =========   ==========     ===========  ===============

Diluted (loss) earnings per ordinary share
    (NIS 0.05 par value):

Continuing operations                                (1.69)         1.40       (2.06)        0.20              -          (0.36)

Discontinuing operations                               5.20         2.07         4.67      (0.32)           8.02            1.10
                                               ------------  -----------    ---------   ----------     -----------  ---------------
                                                       3.52         3.47         2.61      (0.12)           8.02            0.74
                                               ============  ===========    =========   ==========     ===========  ===============

Weighted average number of ordinary shares
   (NIS 0.05 par value) in the computation
   of  diluted earnings per share                17,424,643   16,727,855   16,690,643   16,649,643      16,682,200      17,424,643
                                               ============  ===========    =========   ==========     ===========  ===============

</TABLE>


                                      -3-
<PAGE>


<TABLE>
INCOME STATEMENT DATA:                                                Year ended December 31,
                                                     --------------------------------------------------------------
                                                                                                                      Convenience
                                                                                                                       translation
                                                                                                                      December 31,
                                                        2002         2001         2000         1999         1998      2002
                                                     ----------    ---------     --------    ----------  ----------   -------------
                                                                                                                      $(thousands,
                                                                    Adjusted NIS (thousands,                            except per
                                                                     except per share data)                            share data)
                                                     --------------------------------------------------------------- --------------
a) Net income and comprehensive income

<S>                                                     <C>           <C>         <C>             <C>                        <C>
Net income (loss) from continuing operation             (19,712)      (9,139)     (26,725)        6,557           -          (4,161)
Net income (loss) from discontinuing operation           52,830       34,587       77,940        (5,394)    130,598          11,153
                                                     ----------    ---------     --------    ----------  ----------   -------------
Net Income (loss)                                        33,118       25,448       51,215        (1,163)    130,598           6,992
                                                     ==========    =========     ========    ==========  ==========   =============

  Total comprehensive income (loss)                      78,129       43,178       42,705        (9,026)    130,598          16,493
                                                     ==========    =========     ========    ==========  ==========   =============

b) Earnings per ordinary share (NIS 0.05 par
     value)

Basic and diluted (loss) earnings per
 ordinary share as per U.S. GAAP:
Continuing operation                                      (1.18)       (0.55)       (1.60)        (0.90)          -           (0.25)
Discontinuing operation                                    3.16         2.07         4.67         (0.32)       8.18            0.67
                                                     ----------    ---------     --------    ----------  ----------   -------------
                                                           1.98         1.52         3.07          0.08        8.18            0.42
                                                     ==========    =========     ========    ==========  ==========   =============
 Weighted average  number of shares and share
   equivalents under U.S. GAAP (thousands):              16,691       16,691       16,689        16,481      15,953          16,691
                                                     ==========    =========     ========    ==========  ==========   =============
</TABLE>

(*)        For further information as to the main differences between Israeli
           and U.S. GAAP, as applicable to the Company's financial statements,
           see note 33 to the attached financial statements, included in Item 18
           below.

                                      -4-
<PAGE>



SELECTED BALANCE SHEET DATA:

<TABLE>
<CAPTION>
                                                     at December 31,
                        -----------------------------------------------------------------------------
                                                                                                       Convenience
                                                                                                       translation
                            2002         2001(*)         2000(*)          1999(*)          1998(*)     December 31, 2002
                        -------------  ------------  ---------------  ----------------  -------------  -------------------
                                                  Adjusted NIS (thousands)                             $(thousands)
                        -----------------------------------------------------------------------------  -------------------


<S>                       <C>               <C>              <C>               <C>          <C>                     <C>
 Current assets           294,327           488,163          499,542           637,779      1,306,476               62,133
 Long-term accounts
   and investments        384,990           387,508          548,643           555,953          5,381               81,273
 Fixed assets, net      1,637,656         1,359,870          928,637           784,004              -              345,716
 Assets related to
   discontinuing
   operations             114,134           190,521          309,998           312,408        642,878               24,094
 Total assets           2,443,341         2,437,989        2,291,283         2,293,270      1,954,735              515,799
 Short-term credits       532,274           446,938          376,153           382,049         41,730              112,365
 Long-term debt           627,863           601,333          602,732           466,934         26,008              132,545
 Liabilities related
  to discontinuing
  operations              110,553           255,438          271,869           433,534        820,446               23,338
 Shareholders' equity   1,021,407         1,010,332          936,225           900,973      1,066,551              215,623

* reclassified
</TABLE>

SELECTED BALANCE SHEET DATA
    AS PER U.S. GAAP (**):

<TABLE>
<CAPTION>
                                                     at December 31,
                    ---------------------------------------------------------------------------------
                                                                                                       Convenience
                                                                                                       translation
                          2002           2001(*)         2000(*)          1999(*)          1998(*)     December 31, 2002
                    -----------------  ------------  ---------------  ----------------  -------------  -------------------

                                     Adjusted NIS (thousands, except per share data)                   $(thousands,
                    ---------------------------------------------------------------------------------  except per share
                                                                                                       data)
                                                                                                       -------------------


<S>                       <C>               <C>              <C>               <C>          <C>                     <C>
 Current assets           294,327           488,163          499,542           637,779      1,306,838               62,133
 Long-term
   accounts and
   investments            334,148           342,170          506,543           511,781          5,381               70,540
 Fixed assets, net      1,651,793         1,353,094          943,210           788,364              -              348,700
 Assets related
 to discontinuing
   operations             156,360           190,521          309,998           312,908        644,516               33,008
 Total assets           2,478,372         2,408,918        2,262,161         2,250,331      1,954,735              523,194
 Short-term
   credits                532,274           446,938          376,153           382,049         41,730              112,365
 Long-term debt           627,863           601,333          602,327           466,934         26,008              132,545
 Liabilities
   related to
   discontinuing
   operations             190,642           255,438          271,869           433,534        820,446               40,245
 Shareholders
   equity                 931,936           941,616          899,463           854,560      1,066,551              196,735

</TABLE>

(*) Reclassified.
(**) For further information as to the main differences between Israeli and U.S.
     GAAP, as applicable to the Company's financial statements, see note 33 to
     the attached financial statements, included in Item 18 below.

(**) FOR FURTHER INFORMATION AS TO THE MAIN DIFFERENCES BETWEE

                                      -5-
<PAGE>

    ISRAELI AND U.S. GAAP, AS APPLICABLE TO THE COMPANY'S

    FINANCIAL STATEMENTS, SEE NOTE 33 TO THE ATTACHED FINANCIAL STATEMENTS,
    INCLUDED IN ITEM 18 BELOW.

EXCHANGE RATES

         The exchange rate between the NIS and U.S. dollar published by the Bank
of Israel was NIS 4.373 to the dollar on May 31,  2003.  The  exchange  rate has
fluctuated  during the six months of December  2002 through May 2003 from a high
of NIS 4.924 to the dollar to a low of NIS 4.373 to the dollar. The high and low
exchange  rates  between  the NIS and the U.S.  dollar  during the six months of
December  2002 through May 2003,  as  published  by the Bank of Israel,  were as
follows:

MONTH                      HIGH                       LOW
                           1 U.S. dollar =            1 U.S. dollar =

December 2002              4.791 NIS                  4.632 NIS
January 2003               4.898 NIS                  4.769 NIS
February 2003              4.924 NIS                  4.810 NIS
March 2003                 4.858 NIS                  4.687 NIS
April 2003                 4.671 NIS                  4.521 NIS
May 2003                   4.577 NIS                  4.373 NIS

         The average  exchange rate between the NIS and U.S.  dollar,  using the
average of the  exchange  rates on the last day of each month during the period,
for each of the five most recent fiscal years was as follows:

PERIOD                                                EXCHANGE RATE

January 1, 1998 - December 31, 1998                   3.810 NIS/$1
January 1, 1999 - December 31, 1999                   4.154 NIS/$1
January 1, 2000 - December 31, 2000                   4.067 NIS/$1
January 1, 2001 - December 31, 2001                   4.219 NIS/$1
January 1, 2002 - December 31, 2002                   4.738 NIS/$1

FORWARD LOOKING STATEMENTS

         This Annual Report on Form 20-F contains "forward-looking"  statements,
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities  Exchange Act of 1934, as amended (the "1934 Act")
(collectively,  the "Safe Harbor Provisions"). These are statements that are not
historical  facts and include  statements  about our  beliefs and  expectations.
These statements  contain  potential risks and  uncertainties and actual results
may differ significantly. Forward-looking statements are typically identified by
the words "believe",  "expect",  "intend",  "estimate" and similar  expressions.
Such statements  appear in this Annual Report and include  statements  regarding
the  intent,  belief or  current  expectation  of Elscint  or its  directors  or
officers.  Actual results may differ materially from those projected,  expressed
or  implied in the  forward-looking  statements  as a result of various  factors
including,  without  limitation,  the  factors set forth below under the caption
"Risk  Factors"  (we refer to these  factors as  "Cautionary  Statements").  Any
forward-looking  statements contained in this Annual Report speak only as of the
date hereof,  and we caution potential  investors not to place undue reliance on
such   statements.   We  undertake  no   obligation  to  update  or  revise  any
forward-looking  statements.  All  subsequent  written  or oral  forward-looking
statements  attributable  to us or persons  acting on our  behalf are  expressly
qualified in their entirety by the Cautionary Statements.

                                      -6-
<PAGE>

RISK FACTORS

         We have made some  statements  in this Annual  Report  about our future
activities  that  may or may not come  true.  Factors  over  which we have no or
limited control may affect our actual  performance and results of operations and
may cause  them to be  different  from  what we  present  to you in this  Annual
Report.

         Our  statements  in this Annual  Report are accurate to the best of our
knowledge and belief as of the date this  document is filed with the  Securities
and Exchange  Commission  (the  "SEC").  We take no  responsibility  to publicly
update or revise such statements.

         Elscint's activities are divided into three principal fields (hotel and
leisure,  the entertainment and commercial center in Herzlia and  bio-technology
investment), and it is subject to risks in all fields of activity.

RISKS RELATING TO THE HOTEL BUSINESS

THE LODGING INDUSTRY MAY BE AFFECTED BY ECONOMIC CONDITIONS,  OVERSUPPLY, TRAVEL
PATTERNS,  WEATHER AND OTHER  CONDITIONS  BEYOND OUR CONTROL WHICH MAY ADVERSELY
AFFECT OUR BUSINESS AND RESULTS OF OPERATIONS

         The lodging  industry may be adversely  affected by changes in national
or local economic  conditions and other local market  conditions.  Our hotels in
Johannesburg, Budapest and Bucharest may be subject to the risk of oversupply of
hotel rooms, as well as risks resulting from economic  instability and political
uncertainty  (See: " - Risks  relating to operations in Europe"  below).  We are
subject to various risks related to our operations in Europe, including economic
and political  instability,  political and criminal  corruption  and the lack of
experience and unpredictability of the civil justice system. Other general risks
that may affect our hotel  business  are  changes  in travel  patterns,  extreme
weather  conditions,  changes in  governmental  regulations  which  influence or
determine  wages,   workers  union  activities,   land  acquisition   prices  or
construction costs, changes in interest rates, the availability of financing for
operating  or  capital  needs,  or  changes  in real  estate tax rates and other
current operating expenses. Unforeseen events, such as the outbreak of "foot and
mouth" disease in the United Kingdom,  the September 11, 2001 terrorist  attacks
in New York, and the outbreak of the Severe Acute  Respiratory  Syndrome  (SARS)
have had and may continue to have an adverse  effect on local and  international
travel patterns and, as a result,  on occupancy rates and tariffs in our hotels.
Downturns or prolonged adverse  conditions in the real estate or capital markets
or in national or local economies and difficulties in securing financing for the
development of hotels, could have a material adverse effect on our business, the
results of operations, our ability to develop new projects and the attainment of
our goals.

COMPETITION IN THE LODGING  INDUSTRY  COULD HAVE A MATERIAL  ADVERSE
EFFECT ON OUR BUSINESS AND RESULTS OF OPERATIONS

         The hotel business is highly  competitive,  particularly in those areas
where there is an over-supply of rooms.  Competitive factors within the industry
include:

         o    convenience of location and accessibility to business centers;
         o    room rates;
         o    quality of accommodations;
         o    name recognition;
         o    quality and nature of service and gues facilities provided;
         o    reputation;

                                      -7-
<PAGE>

         o    reservation systems; and
         o    the supply and availability of alternative lodging.

         We  intend to  develop  or  acquire  most of our  hotels in  geographic
locations  where other  hotels are or may be  located.  We expect to compete for
guests and  development  sites  with  national  chains,  large  franchisees  and
independent  operators.   Many  of  these  competitors  have  greater  financial
resources  and  better  brand  name  recognition  than we do,  and may have more
established  relationships with prospective franchisers,  representatives in the
construction  industry and other parties  engaged in the lodging  industry.  The
number of  competitive  lodging  facilities  in a  particular  area,  as well as
seasonal fluctuations, could have a material adverse effect on our occupancy and
rates and, therefore,  revenues of our hotels. Local and global recession trends
may drive down the demand for hotel rooms in any particular area or in all areas
in which we have hotels.  (See "Item 4 -  Information  on the Company - Business
Overview - Competition").  We believe that competition within the lodging market
may increase in the foreseeable  future.  We cannot be sure that new or existing
competitors  will  not  significantly   reduce  their  rates  or  offer  greater
convenience,  services or amenities or significantly expand or improve hotels in
the  markets  in  which  we  currently  or  may  subsequently  compete,  thereby
materially adversely affecting our business and results of operations.


ACQUIRING,  DEVELOPING AND RENOVATING HOTELS INVOLVES  SUBSTANTIAL RISKS, AND WE
CANNOT BE CERTAIN OF THE SUCCESS OF ANY FUTURE PROJECTS

         Part of our growth strategy is to develop new hotels and to acquire and
redevelop old or under- performing hotels. Acquiring,  developing and renovating
hotels involves substantial risks, including:

         o     costs exceeding our budget or amounts agreed to with contractors,
               because of several  factors,  including  delays in  completion of
               construction;
         o     competition  for  acquisition of suitabl  development  sites from
               competitors which may have greater financial resources;
         o     the failure to obtain zoning and construction permits;
         o     unavailability of financing on favorable terms;
         o     the failure of our hotels to earn profits  sufficient  to service
               debt incurred in construction or renovation, or at all;
         o     labor and workers' union legal requirements;
         o     relationships with and performance by contractors;
         o     changes  in  governmental   rules,   regulations,   planning  and
               interpretations; and
         o     changes in general economic and business conditions.

         As of May 31, 2003 we: (i) were in various stages of development of two
hotel projects (the Ballet Institute Building project in Budapest,  Hungary, and
the Thames  Riverbank  project in London);  (ii) have closed down the  Bucuresti
Hotel in Bucharest,  Romania and have  commenced the renovation of the facility;
and (iii) the construction of the oceanarium  attraction  within the Astrid Park
Plaza  Hotel.  We cannot be  certain  that  present  or  future  development  or
renovation will be successful. For successful growth, we must be able to acquire
hotels on attractive  terms and integrate the acquired  hotels into our existing
operations.  For acquired  hotels we must  consolidate  management,  operations,
systems, personnel and procedures,  which may not be immediately possible due to
collective  labor  agreements  or other  legal  or  operational  obstacles.  Any
substantial  delays  or  unexpected  costs  in this  integration  process  could
materially affect our business, financial condition or results of operations. We
cannot be certain  that our newly  acquired  hotels will  perform as expected or
that we will be able to realize any cost savings.

                                       -8-

<PAGE>

CONTINUOUS  DELAYS  WITH  RESPECT TO  RENOVATIONS  OF THE  PHYSICAL  ENVIRONMENT
APPROXIMATE TO THE ASTRID PARK PLAZA HOTEL IN BELGIUM MAY HAVE AN ADVERSE EFFECT
ON ITS OPERATIONS.

         The Municipality of Antwerp is engaged in extensive  construction works
in the Astridplein, located directly opposite the Astrid Park Plaza hotel, which
are intended to prepare the square to  accommodate  the increased  traffic which
will result once the TGV services to the railway station located adjacent to the
square become operational.  The completion of these construction works have been
delayed several times, and have caused and continue to cause obstructions to the
access to the hotel,  which may have an adverse effect on its performance due to
the resultant inconvenience to the hotel's patrons.

WE EXPECT TO GROW INTERNALLY AND THROUGH  ACQUISITIONS AND WE MAY NOT BE ABLE TO
MANAGE OUR GROWTH

         We expect to grow  internally  and through  acquisitions.  We expect to
spend  significant  time and effort in (i) renovating or  refurbishing  existing
hotels,  (ii)  identifying,  completing and integrating  acquisitions  and (iii)
developing  new  properties.  Any  future  growth in our  business  will  impose
significant added  responsibilities on members of our management,  including the
need to identify,  recruit and integrate new managers and executives.  We cannot
be certain that we will be able to identify and retain additional management and
other professional personnel with appropriate  qualifications or at all.

WE HAVE SIGNIFICANT CAPITAL NEEDS AND ADDITIONAL FINANCING MAY NOT BE AVAILABLE

         The  development,  renovation  and  maintenance  of hotels are  capital
intensive.  As part of our growth  strategy we intend to acquire,  renovate  and
redevelop  additional hotels and to develop new hotels. To pursue this strategy,
we will be  required  to obtain  additional  capital  in the  future to meet our
expansion  plans.  In the past we have financed our growth through bank loans at
prevailing  market  rates.  (See "Item 5 - Operating  and  Financial  Review and
Prospects - Loans"). In addition,  in order for our hotels to remain competitive
they must be  maintained  and  refurbished  on an ongoing  basis.  We may obtain
needed capital from cash on hand, including reserves,  cash flow from operations
or from financing,  including  borrowing from banks and others. We may also seek
financing   from  other   sources  or  enter  into  joint   ventures  and  other
collaborative  arrangements in connection with the acquisition or development of
hotel  properties.  We  cannot  be  certain  that we will be able to  raise  any
additional  financing on  advantageous  terms on a timely basis which may affect
our ability to construct or acquire  additional  hotels,  and we may  experience
delays in our planned  renovation  or  maintenance  of our hotels.

WE DEPEND ON PARTNERS IN OUR JOINT VENTURES AND COLLABORATIVE ARRANGEMENTS

         As of May  31,  2003,  we  owned  interests  in  six  hotels  and  were
developing two additional hotels, all in partnership with other entities, and we
may in the future enter into joint ventures or other collaborative arrangements.
Our  investment in these joint  ventures may,  under certain  circumstances,  be
subject to (i) the risk that our partner may become bankrupt or insolvent,  (ii)
the risk that our partner may have economic or other interests or goals that are
inconsistent  with our  interests  and goals,  and that such partner may be in a
position  to veto  actions  which  may be in our best  interests,  and (iii) the
possibility  that  disputes  may  arise  regarding  the  continued   operational
requirements of jointly owned hotels.

OUR MANAGEMENT  AGREEMENTS MAY RESTRICT OUR HOTEL BUSINESS AND ITS  MAINTENANCE,
AND MAY BE TERMINATED

         All of the  operating  hotels in which we have an interest  (other than
the Shaw Park Plaza  Hotel) are either  directly or  indirectly  operated  under
management agreements with Park Plaza Hotels Europe, Ltd. ("Park Plaza").

         Park Plaza is the franchisee for certain  territories under territorial
license and franchise  agreements  with Park Inn  International  Worldwide Hotel
Group, which entitles Park Plaza to use the "Park Plaza" tradename. We expect to
derive  substantial  benefits  from our  strategic  alliances  with Park  Plaza.
However,  any  significant  decline  in the  reputation  of Park Plaza or in its
ability to ensure the  performance  of our hotels at  anticipated  levels  could
adversely  affect our results of operations.  Also, if for any reason Park Plaza
loses its principal franchise, we will automatically lose our ability to use the
Park Plaza name and other benefits,  in which case we may suffer in the areas of
brand name recognition, marketing, and centralized reservations systems provided
by  Park  Plaza,  which,  in  turn,  could  materially


                                       -9-

<PAGE>

affect our operations. Furthermore, we cannot be certain that we will be able to
obtain alternative management services of the same standard on similar or better
terms.  In addition,  the  agreement for each hotel  usually  contains  specific
standards  for,  and  restrictions  and  limitations  on,  hotel  operation  and
maintenance. These standards, restrictions and limitations may conflict with our
priorities,  and impose  capital  demands upon us. In  addition,  Park Plaza may
alter its  standards  or hinder our ability to improve or modify our hotels.  In
order to comply with Park Plaza's  requirements,  or  alternatively  to change a
franchise affiliation for a particular hotel and disassociate ourselves from the
"Park  Plaza"  tradename,  we may be forced to incur  significant  costs or make
capital improvements.

OUR QUARTERLY  RESULTS OF OPERATIONS  FLUCTUATE  DUE TO THE  SEASONALITY  OF OUR
BUSINESS

         Our results of operations are subject to (i) the seasonality of general
business activity, (ii) vacation and holiday seasons (such as summer,  Christmas
and Easter), and (iii) the influence of weather conditions. Generally, the first
and third quarters are weaker than the second and fourth quarters.  In addition,
a weak vacation or holiday season would adversely affect our profitability. (See
"Item 4 - Information on the Company - Business Overview - Seasonality").

OUR BUSINESSES MAY BE IMPACTED BY EXCHANGE RATE FLUCTUATIONS AND INFLATION

         The revenues of our hotel division,  as well as its operating expenses,
capital expenses and debt payments are generally  denominated in the currency in
which each asset is located.  Therefore,  the  strengthening  of the Euro or the
British  Pound  against  the US Dollar may also cause a general  slowing  off of
foreign  tourism into the Euro Block and the United  Kingdom,  as the room rates
when calculated in US Dollars are more costly for the foreign tourist, which has
a negative impact on tourism patterns.

         Furthermore,  any  fluctuations  in the exchange  rates  between  these
currencies  and the NIS may  have an  adverse  effect  on the  reporting  of our
results  as  reflected  in our  Consolidated  Financial  Statements,  which  are
reported in NIS. The reporting of our  operations  that do not have revenues and
expenses in the same currency will be affected by currency  fluctuations.  While
we seek to mitigate the impact on us of a NIS devaluation  (including by linking
financing  transactions  specifically to the relevant  operating  currency),  we
cannot be certain that we will be able to do so successfully.

         In  addition,  to the extent  that the rate of  inflation  in Israel is
lower than the rate of  devaluation  of the NIS in relation  to the dollar,  the
Euro and certain  other  currencies,  or if  inflation in Israel lags behind any
devaluation,  our results of operations may be adversely affected.  In the early
and mid-1990s,  the inflation rate in Israel exceeded the rate of devaluation of
the NIS against the dollar and certain European currencies.  However, this trend
was  reversed  during 1997 and 1999.  A  substantial  devaluation  of the NIS in
relation  to the  dollar  would  substantially  increase  the cost of our future
capital expenditures.

THE VALUE OF OUR INVESTMENT IN THE HOTEL  PROPERTIES IS SUBJECT TO VARIOUS RISKS
RELATED TO OWNERSHIP AND OPERATION OF REAL PROPERTY

         Our investment in the hotel properties is subject to varying degrees of
risk related to the  ownership  and  operation of real  property.  The intrinsic
value of our  hotels and income  from the  hotels  may be  materially  adversely
affected by:

          o    changes  in global and  national  economi  conditions,  including
               global or national recession;
          o    a general or local slowdown in the rea property market;
          o    political  or natural  events  that may have a  material  adverse
               effect on the hotel industry;
          o    competition from other lodging facilities;
          o    material  changes in operating  expenses  including real property
               tax systems or rates;
          o    changes in the availability, cost and terms of financing;
          o    the effect of present or future environmental laws;
          o    the ongoing need for capital improvements and refurbishments; and
          o    material changes in governmental rules and policies.



                                      -10-
<PAGE>

OUR HOTEL  PROPERTIES  MAY NOT  NECESSARILY  BE DISPOSED OF QUICKLY OR WHEN SUCH
DISPOSITION IS REQUIRED OR ADVANTAGEOUS

         Real estate  investments are generally  unable to be sold quickly,  and
therefore  our ability to vary our  portfolio in response to changes in economic
and other conditions may be limited by  circumstances  over which we exercise no
control. We cannot be certain that we will be able to sell a hotel property when
we find such disposition advantageous or necessary or that the sale price of any
sale will be equal to or higher than the amount of our original investment.

LOSSES  WHICH  WE HAVE  NOT  INSURED  OR FOR  WHICH  WE DO NOT  HAVE  SUFFICIENT
INSURANCE COVERAGE COULD RESULT IN LOSS OF VALUE OF OUR HOTEL BUSINESS

         We maintain  comprehensive  insurance on each of our hotels,  including
third  party  liability,  fire and  extended  coverage of the type and amount we
believe  is  customarily  obtained,  in  consultation  with  insurance  experts.
However, there are types of losses,  generally of a catastrophic nature (such as
earthquakes and floods),  that may be uninsurable or too expensive to insure. We
consult with  insurance  experts and apply  customary  standards in  determining
amounts,  coverage limits and deductibility provisions of insurance, with a view
to obtaining  appropriate  insurance  on our hotels at a reasonable  cost and on
suitable terms. This may result in insurance coverage that could be insufficient
to pay the full  current  market  value or current  replacement  cost of a loss.
Inflation,   changes   in   building   codes   and   ordinances,   environmental
considerations  and other factors also might make it unfeasible to use insurance
proceeds to replace a hotel after it has been damaged or destroyed.  Under these
circumstances,  the insurance proceeds we receive might not be enough to restore
our economic position with respect to a damaged or destroyed hotel. In addition,
property  and  casualty   insurance  rates  may  increase  depending  on  claims
experience, insurance market conditions and the replacement value of our hotels.
Furthermore,  future insurance  proceeds are typically pledged in favor of banks
that  provide  loans  to us and  our  subsidiaries  and  other  affiliates,  and
therefore,  would not necessarily be available to us, our subsidiaries and other
affiliates upon payment.

THE  FAILURE TO COMPLY  WITH  GOVERNMENT  REGULATION  MAY  ADVERSELY  AFFECT OUR
BUSINESS AND RESULTS OF OPERATIONS

         The hotel industry is subject to numerous national and local government
regulations,  including those relating to building and zoning  requirements  and
fire  safety  control.  In  addition,  we are  subject  to  laws  governing  the
relationships  with employees,  including minimum wage  requirements,  overtime,
working  conditions,  and work permit  requirements,  and in some  localities to
collective labor  agreements.  While we use reasonable  efforts to substantially
comply with these  requirements,  a determination  that we are not in compliance
with these  regulations  could result in the  imposition  of fines,  an award of
damages to private  litigants  and  significant  expenses in bringing our hotels
into  compliance  with the  regulations.  In  addition,  our  ability to dismiss
superfluous  or  redundant  staff may be hampered by local labor laws and courts
which   traditionally   favor  employees  in  disputes  with  former  employers,
particularly in countries with strong  socialist  histories such as Romania (See
"Item  4  -  Information  on  the  Company  -  Business  Overview  -  Government
Regulation").

COMPLYING  WITH  EXISTING  AND  FUTURE   ENVIRONMENTAL   LAWS,   ORDINANCES  AND
REGULATIONS MAY INVOLVE MATERIAL COSTS

         Our  operating  costs may be affected by the  obligation to pay for the
cost of  complying  with  existing  or  newly  promulgated  environmental  laws,
ordinances and regulations.  In addition,  if any future  environmental laws are
adopted in any country in which we operate,  we may at various times be required
to pay  amounts to comply  with these  laws,  which  amounts  are not capable of
assessment at this time but which may be significant.  Under  environmental laws
in effect in jurisdictions in which we operate, a



                                      -11-
<PAGE>

current  owner or  operator  of real  property  may be  liable  for the costs of
removal or  remediation  of  hazardous or toxic  substances  on, under or in the
property,  even if they relate to periods prior to  ownership.  These laws often
impose  liability  whether or not the owner knew of, or was responsible for, the
presence of hazardous or toxic  substances.  Environmental  laws also may impose
restrictions  on the manner in which  property may be used or  transferred or in
which   businesses  may  be  operated,   and  these   restrictions  may  require
expenditures  or affect  operations.  In  connection  with the  ownership of our
hotels,  we potentially may be liable for any such costs.  The cost of defending
against claims of liability or remediating contaminated property and the cost of
complying with environmental laws could materially adversely affect our business
and results of operations.

WE MAY BE  HELD  LIABLE  FOR  DESIGN  OR  CONSTRUCTION  DEFECTS  OF  THIRD-PARTY
CONTRACTORS

         Our  construction  activities  typically are  performed by  third-party
contractors of whose performance we cannot be certain.  Construction  claims may
also be asserted against us for design or construction  defects which may not be
covered by the  professional  liability  insurance of the  contractors or of the
architects and consultants  (although we generally seek to protect  ourselves by
entering into indemnification  agreements with such contractors,  architects and
consultants). These claims may give rise to liabilities.

ONE OF OUR HOTELS IS AFFECTED BY CERTAIN RISKS OF DOING BUSINESS IN SOUTH AFRICA

         We own an interest in a hotel in South Africa.  Conducting  business in
South Africa is subject to certain risks, including local disputes, a high crime
rate,  economic  instability and political  uncertainty,  which have had and may
continue to have an adverse effect on this hotel.

OUR OWNERSHIP RIGHTS IN THE BUCURESTI HOTEL HAVE BEEN CHALLENGED

         Since the  acquisition  of the  controlling  interest in the  Bucuresti
Hotel complex in Bucharest, Romania, we have encountered a number of attempts to
challenge  both the validity of the  acquisition  of the complex and our control
over the  company  owning  the  rights to the  hotel  (See  "Item 8 -  Financial
Information  - Legal  Proceedings").  These  attempts  have  included  a  motion
submitted  to the  Supreme  Court in Romania  seeking,  on  strictly  procedural
grounds,  to  overrule  a decision  of that court in which the court  upheld the
validity of the tender and directed the Romanian State Ownership Fund to execute
the  transaction  for the sale of the  controlling  interest in the company that
owns the hotel.  This claim has been  rejected by the Supreme  Court.  A further
claim  submitted  to the  courts  in  Romania  seeking  the  termination  of the
privatization  contract  and the  annulment of the transfer of the shares in the
hotel owning company to our wholly owned  subsidiary,  has also been rejected by
the court on procedural grounds.

RISKS RELATING TO OUR  ENTERTAINMENT  AND COMMERCIAL  CENTER IN HERZLIA,  ISRAEL

THERE ARE MANY COMPETING ENTERTAINMENT AND COMMERCIAL CENTERS

         There are several  entertainment  and  commercial  centers in Israel in
general, and specifically in the greater Tel Aviv area (which includes Herzlia).
There are two  operational  shopping  centers within  approximately 1 to 3 miles
from the  location  of our  entertainment  and  commercial  center.  These other
centers compete for customers as well as for third party retailers and operators
to lease  space  in such  centers.  There  can be no  assurance  that we will be
successful in competing with the other  entertainment  and  commercial  centers.
(See also "Item 4 - Information on the Company - Competition - Entertainment and
Commercial Center").



                                      -12-
<PAGE>

WE ARE DEPENDENT ON ENGAGING THIRD PARTIES TO ENTER INTO LEASE  AGREEMENTS,  AND
ON OBTAINING AND RETAINING HIGH CUSTOMER TRAFFIC

         We are dependent on our ability to induce food and commodity  retailers
and  entertainment  service  providers  to enter  into  leases  for units in our
entertainment  and commercial  center,  or to renew existing leases on favorable
terms.  There is also active  competition to attract tenants to commercial areas
and other  locations  suitable for  entertainment  and commercial  centers.  The
general  economic  recession in Israel may also deter  businesses  from entering
into new  lease  agreements  or  renewing  existing  lease  agreements,  or from
incurring  the costs  required to fit out their  rented  units in an  acceptable
manner.  If a significant  portion of our existing leases expire, we may find it
more expensive or less profitable to continue to operate our  entertainment  and
commercial center.

THE QUARTERLY  RESULTS OF OPERATIONS OF THE  ENTERTAINMENT AND COMMERCIAL CENTER
MAY FLUCTUATE DUE TO THE  SEASONALITY OF OUR BUSINESS AND GENERAL  CONDITIONS IN
ISRAEL

         A  weak   holiday   shopping   season   would   adversely   affect  our
profitability. The annual revenues and earnings of the entities that have leased
or will lease space in our  entertainment  and commercial  center, as well as of
prospective lessees,  are substantially  dependent upon the amount of traffic in
our  entertainment  and commercial  center during the holiday shopping  periods,
which may affect their ability to satisfy their rental obligations. As a result,
changes in the level of  traffic  in our  entertainment  and  commercial  center
during this period may have a  disproportionate  effect on the annual results of
operations of the entities that lease space in our  entertainment and commercial
center,  which may give rise to tenants  going out of  business,  defaulting  on
their lease  agreements or otherwise  being unable to fulfill their  obligations
towards  us,  which  may have a  material  adverse  effect on our  business.  In
addition,  patron traffic during the periods immediately  following peak holiday
seasons are  traditionally  slower.  (See "Item 4 - Information on the Company -
Seasonality"). Furthermore, general economic recession in Israel, as well as the
deteriorating  security  situation in the Middle East and  terrorist  attacks on
civilian  targets in Israel  could  cause a slowdown  in  customer  traffic  and
consumer purchasing  patterns.  (See " - Risks relating to Israel - Military and
economic  conditions  in Israel  may  affect  our  operations  and may limit our
ability to manufacture and sell our products" below.)

ACCESS TO THE COMMERCIAL AND ENTERTAINMENT CENTER MAY BECOME CONGESTED

         Vehicular access to the commercial and  entertainment  center is liable
to be  congested  during  peak  periods.  The  main  access  route  from the Tel
Aviv-Haifa  highway runs  through a popular  entertainment  area which  attracts
numerous  visitors  principally at night. The same area accommodates many office
and commercial  buildings which creates  increased traffic flow at the beginning
and end of the working  day.  The patrons of the  commercial  and  entertainment
center may encounter traffic congestion  problems in reaching the center,  which
may  adversely  affect the  number of  customers  visiting  the  center.  We are
exploring various solutions designed to alleviate access difficulties (including
the provision of shuttle services from the nearby Herzlia railway terminal).

A DECISION OF AN ISRAELI  COURT MAY CAUSE DELAYS IN THE GENERAL  DEVELOPMENT  OF
THE PROJECT THAT INCLUDES OUR ENTERTAINMENT AND COMMERCIAL CENTER

         An Israeli court has determined  that the zoning plan applicable to the
Herzlia  Marina  project  permits the  construction  of resort  units and not of
residential  units.  This  decision  is not  final  and  an  appeal  by  various
developers  is still  pending.  While this issue  does not  directly  affect our
entertainment and commercial  center,  any delays in the general  development of
the  project  caused by the  resolution  of this  matter  may affect the flow of
consumers to the area.


                                      -13-
<PAGE>


RISKS RELATING TO OUR BIO-TECHNOLOGY INVESTMENT

START-UP OPERATIONS MAY BE HIGH RISK VENTURES

         Investments  in  bio-technology  start-up  operations  may involve high
risks.  These  investments are generally  directed at providing a bridge between
the preliminary  concept/proto-type  stage and the  manufacturing  and marketing
stages.  Success of start-up  investments is generally a function of the quality
of management,  success in tests carried out during the research and development
phase,  the quality of the product or service,  its relative  added value in the
market and the timing of its launching. Start-up companies in the bio-technology
business are subject to various risks generally  encountered by new enterprises,
including delayed or protracted research and development programs, acceptance of
product in the market place,  and the need for additional  financing which might
not be available.  While Elscint used  considerable  efforts to investigate  the
integrity and potential of its  investment  in Gamida Cell Ltd.  ("Gamida"),  we
cannot  be  certain  that  the  professional  assessments  made  at the  time of
investment  as to the  quality  of the  concept  or the  proto-type  will  prove
correct, or that there will be an adequate return on investment,  if at all, nor
can  Elscint  be certain  that the  timing of  realizing  the  profits  from its
investment will be optimal.

OUR INVESTMENTS IN GAMIDA IS SPECULATIVE IN NATURE AND WE MAY NEVER REALIZE ANY
REVENUES OR PROFITS FROM SUCH INVESTMENTS

         We cannot be  certain  that our  investment  in Gamida  will  result in
revenues or profits.  As of the date of this  report,  Gamida has not  generated
operating  revenues  sufficient to pay dividends to us. Economic,  governmental,
regulatory and industry  factors  outside our control  affect Gamida.  If Gamida
will not  successfully  implement its business  plan  with the assistance of our
experience  and  methodologies,  then we will not be able to realize any profits
from it.  There are also  material  risks  relating  to the  business of Gamida.
Accordingly,  our  ability  to  realize  profits  from this  investment  will be
dependent  upon the  management  and  operations  of Gamida,  the success of its
research and development activities, the timing of the marketing of its products
and numerous other factors beyond our control.

DEVELOPMENT PERIODS OF PRODUCTS OR MARKETABLE SERVICES MAY BE PROTRACTED

         The period of time which may elapse  between the initial  stage and the
stage of  development of marketable  bio-technology  products or services may be
protracted.  Concept-to-market  capability  development  may exceed  five years,
during which time substantial  capital  investments may be required.  Unforeseen
delays in the projected research and development  timetable may cause additional
delays. We cannot be certain that the products or services  developed by Gamida,
once developed, will achieve the projected degree of market penetration, or that
competitive  products will not have reached the market prior thereto, nor can we
be certain that the profits from such  products or services  will be adequate in
light of the extent and period of the required investments.

                                      -14-

<PAGE>
CLINICAL TESTING OF PRODUCTS UNDER DEVELOPMENT REQUIRES FDA APPROVAL

         Products in the  bio-technology  field are required to undergo clinical
tests,  either in compliance with the requirements of the United States Food and
Drug  Administration  (the "FDA") or the  requirements  of competent  regulatory
authorities in other countries where target markets are identified.  In order to
initiate  clinical  studies  in humans,  the prior  approval  of the  regulatory
authorities must be obtained.  In some circumstances,  applications to market of
such  products may be denied,  or the award of  permission  may be delayed.  The
inability of Gamida to commence  clinical  studies in a timely manner may have a
negative impact on their  projected  time-to-market  factors.  Failure to obtain
such approvals could have a material adverse effect,  and thus on our investment
in Gamida.

         In the event that Gamida is unable to obtain such regulatory  approvals
in any potential market, then they will be unable to market their bio-technology
products.  While we have no reason to believe  that such  approvals  will not be
obtained,  it should be noted that they are a  prerequisite  to the marketing of
the products of Gamida in all of the major target markets.

PHYSICIANS MAY NOT UTILIZE AND MAY OPPOSE NEW PRODUCTS OR TECHNOLOGIES OF GAMIDA

         Certain  products or  services  developed  by Gamida may  fundamentally
change the treatment of various medical conditions.  Physicians may be reluctant
to use such  products  or  services,  and may prefer to apply  other  methods of
treatment.

THE PRODUCTS AND SERVICES OF GAMIDA MAY FACE COMPETITION

         The  products  and  services  of  Gamida  may  face   competition  from
alternative sources. There are various competitors in the fields in which Gamida
is engaged, many of whom have greater financial resources than it, and have well
developed  marketing networks which Gamida currently lack. In addition,  even if
Gamida  begins to market its  products  prior to its  competitors,  we cannot be
certain that  competing  products  will not attain a  significant  market share.
Finally,  several  competitors enjoy high brand name  recognition,  which Gamida
lacks.  (See "Item 4 - Information on the Company - Competition - Bio-Technology
Investments").

GAMIDA REQUIRES STRATEGIC PARTNERS TO MARKET ITS PRODUCTS

         In order to penetrate the U.S. and European markets, it is essential to
find a  well-positioned  and well-known  strategic  partner with high brand name
recognition in the market place.  This strategic partner would provide worldwide
or extensive territorial marketing, sales and other services for the products of
Gamida.  Failure to establish a strategic partnership of this type could have an
adverse  effect on the  success  of the  products,  since the lack of brand name
recognition,  geographical  distance to important target markets and the lack of
an established  marketing and service  infrastructure  would severely hamper the
efforts of Gamida to achieve a significant and early market presence.

GAMIDA MAY BE REQUIRED TO DEFEND ANY POTENTIAL  INFRINGEMENT OF ITS PATENTS

         Infringement   of  registered  and  pending   patents  by  unauthorized
competitors  may result in competing  products  using the  technology of Gamida.
While we expect Gamida to  vigorously  challenge  any such  violations  with all
legal  rights and  processes  available  to it, we cannot be  certain  that such
litigation  will either be  successfully  concluded or concluded with sufficient
expedition to reduce the harm. In addition, the costs of pursuing these remedies
is often high.

THE PRODUCTS AND SERVICES OF GAMIDA  COULD  INFRINGE THE  INTELLECTUAL  PROPERTY
RIGHTS OF OTHERS, CAUSING COSTLY LITIGATION AND THE LOSS OF SIGNIFICANT RIGHTS

         Gamida is subject to the risk that  others may assert  claims that they
have infringed the claimants'  current or future  intellectual  property rights.
Any claims, with or without merit, could be time-consuming,

                                      -15-


<PAGE>


result in costly  litigation,  prevent  product  shipment  or cause  delays,  or
require Gamida to enter into royalty or licensing agreements, any of which could
harm its business.  Patent litigation in particular has complex technical issues
and inherent  uncertainties.  In the event that an  infringement  claim  against
Gamida is successful  and they cannot  obtain a license on  acceptable  terms or
license a substitute  technology or redesign its product to avoid  infringement,
its business could be harmed.

RISKS RELATING TO ISRAEL

SECURITY AND ECONOMIC CONDITIONS IN ISRAEL MAY AFFECT OUR OPERATIONS

         We are  incorporated  under Israeli law and our  principal  offices are
located  in  Israel.  Political,  economic  and  security  conditions  in Israel
directly affect our operations.  Since the  establishment of the State of Israel
in 1948,  various armed  conflicts  have taken place between Israel and its Arab
neighbors and a state of hostility,  varying in degree and intensity, has led to
security and economic  problems  for Israel.  Israel  signed a peace treaty with
Egypt in 1979 and a peace  treaty  with  Jordan in 1994.  As of the date of this
annual  report,  Israel has not entered into any peace  agreement  with Syria or
Lebanon.  Since 1993 several  agreements have been signed between Israel and the
Palestinians,  but a final agreement has not been achieved.  Since October 2000,
there  has  been a  marked  increase  in  hostilities  between  Israel  and  the
Palestinians,  characterized by terrorist attacks on civilian  targets,  suicide
bombings and military incursions into areas under the control of the Palestinian
Authority,  all of which have adversely  affected the peace process,  placed the
Israeli  economy  under  significant  stress,  and  have  negatively  influenced
Israel's relationship with several Arab countries. In addition, some neighboring
countries,  as  well  as  certain  companies  and  organizations,   continue  to
participate  in a boycott of Israeli firms and others doing business with Israel
or with Israeli  companies.  However,  restrictive  laws,  policies or practices
directed  towards Israel or Israeli  businesses  could have an adverse impact on
the expansion of our business.  In addition,  we could be adversely  affected by
the  interruption  or  curtailment  of  trade  between  Israel  and its  trading
partners,  a  significant  increase in the rate of  inflation,  or a significant
downturn in the economic or financial condition of Israel.

MANY OF OUR  DIRECTORS,  OFFICERS AND EMPLOYEES ARE OBLIGATED TO PERFORM  ANNUAL
MILITARY RESERVE DUTY IN ISRAEL.  WE CANNOT ASSESS THE POTENTIAL IMPACT OF THESE
OBLIGATIONS ON OUR BUSINESS

         Our  directors,  officers and employees who are male adult citizens and
permanent  residents  of  Israel  under  the  age of 49,  including  some of our
directors and officers, are, unless exempt, obligated to perform annual military
reserve  duty and are  subject to being  called to active duty at any time under
emergency circumstances. The deteriorating security situation in the Middle East
has  caused,  and will  continue  to cause in the  foreseeable  future,  a sharp
increase in the army reserve obligations of those of our directors, officers and
employees  who are subject to such  reserve duty  obligations.  Although we have
operated  effectively  under these  requirements in the past,  including  during
recent  hostilities with the Palestinians and the Iraq War, we cannot assess the
full impact of these  requirements  on our  workforce or business if  conditions
should change,  and we cannot predict the effect of any increase or reduction of
these requirements on us.

AN INCOME TAX REFORM IN ISRAEL MAY ADVERSELY AFFECT OUR SHAREHOLDERS AND US

         Effective as of January 2003, the Israeli Parliament has enacted a wide
ranging reform of the Israeli income tax system. These tax reforms have resulted
in  significant  changes to the  Israeli tax  system,  and may have  adverse tax
consequences for our shareholders and us. (See "Item 10 - Additional Information
- Taxation - Reform of Taxes on Income in Israel".)

IT MAY BE DIFFICULT TO ENFORCE A U.S.  JUDGMENT  AGAINST US AND OUR OFFICERS AND
DIRECTORS OR TO ASSERT U.S. SECURITIES LAWS CLAIMS IN ISRAEL OR SERVE PROCESS ON
US AND SUBSTANTIALLY ALL OF OUR OFFICERS AND DIRECTORS

         All of our executive  officers and directors are  non-residents  of the
United States,  and a substantial  portion of our assets and the assets of these
persons are located  outside the United States.  Therefore,  it may be difficult
for an investor, or any other person or entity, to enforce a U.S. court judgment
based upon the civil liability provisions of the U.S. federal securities laws in
an Israeli court against or any of those persons or to effect service of process
upon these persons in the United States.  Additionally,  it may


                                      -16-
<PAGE>

be difficult  for an investor,  or any other person or entity,  to enforce civil
liabilities under U.S. federal securities laws in original actions instituted in
Israel.

         Notwithstanding  the  foregoing,  Israeli  courts  may  enforce  a U.S.
non-appealable judgment for liquidated amounts in civil matters,  obtained after
due process before a court of competent jurisdiction  (according to the rules of
private  international law currently  prevailing in Israel) which recognizes and
enforces  similar  Israeli  judgments,  provided that:  (i) adequate  service of
process has been effected and the defendant has had a reasonable  opportunity to
be heard; (ii) such judgment and the enforcement thereof are not contrary to the
law, public policy,  security or sovereignty of the State of Israel;  (iii) such
judgment was not  obtained by fraud and does not  conflict  with any other valid
judgment in the same matter between the same parties; (iv) an action between the
same parties in the same matter is not pending in any Israeli  court at the time
the lawsuit is  instituted  in the  foreign  court;  and (v) the  judgment is no
longer subject to a right of appeal.

         Foreign judgments  enforced by Israeli courts generally will be payable
in Israeli  currency.  The usual  practice  in Israel in an action to recover an
amount in a non-Israeli currency is for the Israeli court to render judgment for
the equivalent  amount in Israeli  currency at the rate of exchange in effect on
the date thereof.  Under  existing  Israeli law, a foreign  judgment  payable in
foreign currency may be paid in Israeli currency at the rate of exchange of such
foreign  currency  on the  date  of  payment  or in  foreign  currency.  Pending
collection,  the amount of the  judgment of an Israeli  court  stated in Israeli
currency  will  ordinarily  be linked to the Israeli  Consumer  Price Index plus
interest  at the annual  rate (set by Israeli  regulations)  prevailing  at such
time. Judgment creditors must bear the risk of unfavorable exchange rates.

         In April 1998,  the  Israeli  government  announced  its  intention  to
liberalize its foreign  currency  control  regime by, in effect,  permitting any
foreign  currency  activity or transaction,  except for certain  restrictions on
institutional  investors and on some derivatives  transactions of non-residents.
For  example,  in May 1998,  the Israeli  government  adopted  regulations  that
replaced many of the  restrictions  on foreign  currency  transactions  with the
requirement  that such  transactions  be reported to the  Controller  of Foreign
Currency at the Bank of Israel.  Over time, if enacted,  this liberalization may
ultimately include the NIS becoming a fully convertible  currency.  No assurance
may be given that the Israeli government's  intentions as announced will receive
legislative or regulatory approval,  that any such approvals will be received in
any particular time frame or that the risks described above will be alleviated.

RISKS RELATING TO OPERATIONS IN EUROPE

WE ARE SUBJECT TO VARIOUS RISKS RELATED TO OUR  OPERATIONS IN EUROPE,  INCLUDING
ECONOMIC AND POLITICAL  INSTABILITY,  POLITICAL AND CRIMINAL  CORRUPTION AND THE
LACK OF EXPERIENCE AND UNPREDICTABILITY OF THE CIVIL JUSTICE SYSTEM.

         In some of the European countries in which we operate,  in spite of the
fact  that   governments  of  such  countries  have   liberalized   policies  on
international trade, foreign ownership and development, investment, and currency
repatriation to increase both international trade and investment,  such policies
might  change  unexpectedly.  We may be  adversely  affected  by the  rules  and
regulations  regarding  foreign  ownership of real and personal  property.  Such
rules may change quickly and dramatically and thus may have an adverse impact on
ownership  and may result in a loss without  recourse of our property or assets.
Domestic and  international  laws and regulations,  whether existing today or in
the future,  could adversely  affect our ability to market and sell our products
and could impair our profitability.

         Romania in  particular  is a  developing  country  that until the early
1990's was allied  with the  former  Soviet  Union  under a  communist  economic
system.  The country,  which is still  economically  and  politically  unstable,
suffers from rapid  devaluation of the Romanian Lei (local currency) against the
U.S.  dollar,  political and criminal  corruption,  and lack of  experience  and
commercial acumen,  and  unpredictability  of the civil justice system.  Romania
continues to suffer from high  unemployment,  low wages, low literacy rates, and
corruption.  These  risks  could  be  harmful  to us and are very  difficult  to
quantify or predict.



                                      -17-
<PAGE>

         Any foreign company or litigant may encounter  difficulty in prevailing
in any dispute with or enforcing any judgment against the Romanian government or
any of our  officers  or  directors  under the  Romanian  legal  system.  If our
ownership  rights in the  company  which owns the  Bucuresti  Hotel  complex are
successfully challenged,  this may affect our ability to obtain compensation for
our original investment if we are compelled to resort to litigation.

         Some countries, including Romania, may regulate or require governmental
approval for the repatriation of investment  income,  capital or the proceeds of
sales  of  securities  by  foreign  investors.   In  addition,  if  there  is  a
deterioration in a country's balance of payments or for other reasons, a country
may impose temporary  restrictions on foreign capital  remittances  abroad. This
may  adversely  affect our ability to  repatriate  investment  loans or to remit
dividends.

         Various  of  the  countries  in  which  we  operate  have   experienced
substantial,  and in some periods  extremely  high,  rates of inflation for many
years.  Inflation  and rapid  fluctuations  in inflation  rates have had and may
continue to have negative  effects on the economies  and  securities  markets of
such countries. In addition, in an attempt to control inflation,  price controls
have been  imposed at times in such  countries,  which may affect our ability to
increase our room rates.

OTHER RISKS

WE ARE SUBJECT TO VARIOUS  LEGAL  PROCEEDINGS  THAT MAY HAVE A MATERIAL  ADVERSE
EFFECT ON OUR RESULTS OF OPERATIONS

         Following the sale of substantially  all of our assets in 1998, we were
served  with  various  claims  filed by  former  and  current  shareholders  and
employees  of  Elscint in Israel and in the U.S.  relating  to the  negotiations
preceding  the  transactions  and  the  transactions  themselves.  Some  of  the
plaintiffs filed motions to recognize the claims as class actions.  In addition,
certain other legal  proceedings  have been  initiated  against us in connection
with the  change of our  control  in May 1999 and the  acquisition  of our hotel
businesses  in September  1999,  including  motions to recognize  such claims as
class  actions (See "Item 8 - Financial  Information - Legal  Proceedings").  We
cannot estimate the results of these proceedings.  A determination against us in
some or all of the  proceedings  may materially  adversely  affect our operating
results.

ITEM 4.  -- INFORMATION ON THE COMPANY

SUMMARY

         Elscint  was  incorporated  in  Israel  in  1969  and  has a  perpetual
duration. Our registered offices are located at 13 Mozes Street, Tel Aviv 67442,
Israel.  You  may  reach  us by  telephone  at:  972-3-608-6020  or by  fax  at:
972-3-696-2022.

         Following the sale of our components  manufacturing  facility in Israel
Elscint is currently engaged in the following businesses:

          o    ownership,  operation and lease of hotels in Europe and elsewhere
               and of hotel  projects  that  are  presently  under  development,
               through subsidiary companies and jointly controlled companies;

          o    ownership, through a wholly-owned subsidiary, of an entertainment
               and commercial center in Herzlia, Israel; and

          o    investment in a bio-technology Company (Gamida).



                                      -18-
<PAGE>

STRATEGY

         HOTEL AND LEISURE

         Elscint's  business  concept and growth strategy for its hotel business
include the following key elements:

          o    Our hotels are  generally  situated in close  proximity  to major
               railway links into cities, such as the central railway station in
               Antwerp  (situated  close to the  Astrid  Park  Plaza  hotel) and
               Victoria  railway  station  in  London  (situated  close  to  the
               Victoria Park Plaza hotel),  both of which stations are scheduled
               to  accommodate  the services of the train de grand  vitesse (the
               "TGV"), when such services become operational in these areas.
          o    Our  hotels  offer  convenient   access  to  the  local  business
               districts, as well as attractive conference facilities.
          o    Our hotels make considerable efforts t offer personal services at
               a  five-star  level  under the  motto  "The  World's  Friendliest
               Hotels," but at four-star level prices.
          o    Our hotels offer quality  services and guest  facilities to their
               patrons,  with  emphasis on  advanced  hi-tech  services  such as
               Internet  connections  in  rooms  and a  fully-equipped  business
               center  with  facsimile,  photocopying  services  and  e-mail and
               computer  link-ups,  as well as fitness centers,  indoor swimming
               pools and saunas.
          o    Our  hotels'  principal  target  customer  base  is the  business
               traveler and the tourist industry, both individuals and groups.
          o    Our hotels focus on strategic  cooperation and  affiliation  with
               management   companies  with  know-how  and  expertise  in  hotel
               management,   which   enables   optimal  use  of  a   centralized
               reservation system, and which is beneficial due to the advantages
               of a unified  management  system that promotes the  efficiency of
               the operation and control of hotels in diverse locations.
          o    The   development  and   implementation   of  an  efficient  cost
               management system in order to reduce overhead costs to a minimum.


         The goal of our hotel business is to acquire and manage four-star hotel
properties  which  provide the  business and vacation  traveler  with  five-star
quality accommodations,  conveniently located near major transportation stations
and commercial centers, at four-star hotel prices.

         Our growth  strategy for the hotel business is increasing the number of
hotel rooms in both Western and Eastern Europe, with emphasis on those cities in
which a shortage of rooms exists in general,  such as London and  Amsterdam,  or
where a shortage of quality  rooms  exists,  such as  Bucharest,  with a view to
attaining our ultimate goal of having a presence in most major European  cities.
This strategy is being  implemented  both by the  acquisition  and renovation of
existing  operational  hotels and by the  construction  and  development  of new
hotels on land purchased in optimal locations.  Where  appropriate,  Elscint may
draw  on the  experience  and  resources  of its  group  affiliates  to  develop
integrated  projects  which will include  hotels,  entertainment  and commercial
centers, and office facilities, subject to applicable restrictions.

         Each of our operating hotels has appointed Park Plaza as its management
company.  Park Plaza owns the  franchise  to the "Park  Plaza" brand name in the
Benelux countries,  United Kingdom,  various countries in Eastern Europe,  South
Africa and a number of countries in the Middle East.  Park Plaza is  responsible
for the operation of the hotels,  including the daily monitoring of each hotel's
results and the supervision of the local  management and staff.  However,  local
management  is employed by the  respective  company  owning the hotel and not by
Park Plaza, although Park Plaza does render hiring services.


                                      -19-
<PAGE>

         Each of the companies owning the Victoria,  Utrecht,  Astrid,  Sherlock
Holmes  and  Victoria  London  hotels  has  recently  entered  into  a  restated
management agreement with Park Plaza, the principal provisions of which include:

          o    payment  to Park  Plaza of an annual  incentive  fee of 7% of the
               gross operating profit of the hotel ("Incentive Fee");
          o    payment  to Park  Plaza of an  annual  bas fee of 2% of the gross
               hotel room revenues  ("Annual Base Fee"),  plus  reimbursement of
               advertising  expenses,  office  expenses (at a fixed  amount) and
               other expenses incurred by Park Plaza in carrying out its duties;
          o    management  agreements  valid for an initial fifteen year period,
               and  renewable  automatically  for an  additional  period  of ten
               years,  subject  to the right of either  party to  terminate  the
               agreement by giving twelve months  advance  notice (or six months
               advance  notice in the event  that the  Company  decides on early
               termination of the management agreement);
          o    if any of the  hotel-owning  companies  should  decide  on  early
               termination  of  the  management  agreement,  then  it  would  be
               required  to pay to Park Plaza an amount  equal to the  Incentive
               Fee,  the  Annual  Base  Fee and the  Franchise  Fee (as  defined
               hereunder)  for the year  immediately  preceding the date of that
               sale; and
          o    in consideration  for monthly  royalties of up to 1% of the gross
               hotel-room  revenues  ("Franchise  Fee"),  our hotels may use the
               brand name "Park  Plaza",  certain  Park Plaza  trademarks,  Park
               Plaza's international marketing network and international booking
               center,  Park Plaza's  marketing and advertising  material,  Park
               Plaza's international hotel conferences,  Park Plaza's assistance
               in planning,  developing and applying its methods with respect to
               the  hotels,  training  of staff  and  senior  management  of the
               hotels, and inclusion in the list of Park Plaza hotels worldwide.
               Elscint  designs  and  refurbishes  its hotels in order to comply
               with Park Plaza's operational standards.

         For technical  reasons,  no formal  agreement has been signed as of May
31, 2003 with Park Plaza in respect of the  management  of the Sandton  hotel in
South  Africa,  although Park Plaza manages the hotel on a de facto basis on the
same terms and conditions as the remaining operational hotels.

         The  management  agreement  with Park Plaza in respect of the Shaw Park
Plaza hotel in London has been terminated by mutual agreement following the long
term lease of the property to an unrelated  third party (See " - Information  on
the  Company -  Highlights  of  2002").  In  addition,  a  consulting  agreement
previously  entered  into with Park Plaza  pertaining  to the  operation  of the
Bucuresti  hotel in  Bucharest,  Romania,  has also  been  terminated  by mutual
agreement   following   the   close-down  of  the  hotel  for   renovation   and
refurnishment. (See " - Information on the Company - Highlights of 2002")

         It is anticipated that a management  agreement,  on terms substantially
similar to the foregoing,  will also be signed with Park Plaza in respect of the
Riverbank hotel once its construction is completed.

         In December 2002, an International Management Agreement was signed with
an unrelated third party  ("Operator") for the future management of the hotel in
Budapest. This agreement provides for the following:

          o    A term of 20 years.

          o    The  conversion of the "Ballet  Institut  Building" into a 5 star
               hotel with  approximately  200 rooms (including 32 suites) within
               36 months from the date of the agreement.

          o    As  consideration  for the management of the hotel,  the Operator
               will be  entitled  to  receive  a base  fee of 3.5% of the  total
               revenue,  and a  management  fee of 10%  of the  gross  operating
               profit ("GOP") of the hotel.

          o    In addition, the Operator will guarantee,  throughout the term of
               the agreement,  that the adjusted gross operating profit (defined
               as GOP less the management fee, allocations for



                                      -20-
<PAGE>

               reserve funds and property  insurance) will not be less than Euro
               2.5 million  (approximately  $2.6 million) during the second full
               fiscal year,  and Euro 2.9 million  (approximately  $3.0 million)
               during each subsequent full fiscal year, provided that Operator's
               obligation  to  guarantee  results is capped at a total of Euro 6
               million (approximately $6.3 million) (the "Cap"). Subsidiaries of
               Elscint and of Red Sea have  undertaken  to repay to Operator any
               amounts  paid out  under the  guaranteed  result  obligations  if
               Operator  lawfully  terminates  the  agreement,  or if the  hotel
               owning company unlawfully seeks to terminate the agreement.

          o    The  Operator  also has a "claw back" right to recoup any amounts
               paid to fulfill its guaranteed  result obligation if the adjusted
               gross  operating  profit  in  any  subsequent  year  exceeds  the
               guaranteed  level for that  year,  provided  that any  amounts so
               recouped will be deemed to replenish the Cap.

          o    The  Operator  has  undertaken  that  durin  the  first  5  years
               following the opening of the hotel,  it shall not operate another
               hotel  within  the  borders of the city of  Budapest,  and for an
               additional 5 years it will not operate  another  hotel within a 2
               mile radius of the hotel on the Pest side of the Danube River.

          o    The hotel owning  company (in which Elscint holds a 50% interest)
               may terminate the management agreement in the event of a material
               and  un-remedied  breach by  Operator,  if  Operator  is declared
               insolvent, if Operator breaches its exclusivity obligations or if
               Operator  forfeits its right to use the brand-name.  In addition,
               the management agreement may be terminated for  under-performance
               compared to competing hotels of the same category and standard in
               Budapest,   as  determined  by  an   internationally   recognized
               consulting firm.

          o    The Operator may terminate the management  agreement if the hotel
               is not opened  within 36 months after the date of the  agreement,
               if the  construction  of the hotel  departs  materially  from the
               approved plans.

         The  consummation of the foregoing  management  agreement is subject to
ratification  by the  respective  boards of  directors  of both the hotel owning
company  and  the  Operator.  As of the  date  of this  report,  the  management
agreement has not yet been ratified,  as the parties are presently discussing an
upgrade of the  operating  brand name which in turn will affect the level of the
management and incentive fees to be paid to the operator.

         ENTERTAINMENT AND COMMERCIAL CENTER

         Our entertainment and commercial center is located in the heart of, and
faces, the Herzlia Marina, which is one of the most prestigious land development
projects in Israel.  The  principal  features of our  business  strategy for the
entertainment and commercial center include:

          o    The creation of a  distinctively  aesthetic  and  architecturally
               pleasant structure, with emphasis on "customer friendliness",  at
               a prime and unique  location  overlooking  the Herzlia Marina and
               the shores of the Mediterranean Sea;

          o    An   aggressive   marketing   campaign   to  attract   recognized
               "brand-name" retailer and entertainment service provider tenants;

          o    Offering  a  wide  range  of  quality  entertainment  facilities,
               together with an impressive variety of retail opportunities;

          o    Providing ample parking facilities for patrons; and

          o    An  innovative  and  dynamic  management  program  for the center
               designed to foster the interest of patrons.

         The Herzlia Marina project  includes an anchorage for over 800 vessels,
as  well  as  our   entertainment   and  commercial  center  and  various  other
developments by unrelated third parties,  all being constructed on approximately
1.46 million square feet of land which has been reclaimed from the sea.



                                      -21-
<PAGE>

         The  entertainment and commercial center itself will have a total gross
constructed  area (excluding  underground  parking  facilities) of approximately
455,000  square  feet,  of  which  approximately  280,000  square  feet  will be
available for rent, and approximately  130,000 square feet will be public areas.
In addition,  a large underground parking facility of 630,000 square feet, which
will  accommodate  approximately  1,700 vehicles,  is also being  constructed to
serve the  entertainment  and  commercial  center.  The lower  ground floor will
include numerous large children's  oriented  entertainment  areas,  restaurants,
cafes and retail  stores.  The upper ground level will include  restaurants  and
cafes with a sea view.  This level will also house  "fast food"  vendors,  and a
"food market" in lieu of the traditional supermarket.

         It is  anticipated  that the center  will draw its  customers  from the
northern parts of Greater Tel Aviv (including the northern  satellite  cities of
Herzlia,  Ra'anana  and Kfar Sava) as well as the suburbs of northern  Tel Aviv,
attracting a potential  customer  base of  approximately  1,500,000 to 2,000,000
residents.  The center will offer  "brand  name"  retail  outlets,  a variety of
entertainment and leisure activities, a food court with more fast and higher-end
food  establishments than in any other single building in Israel, a multi-screen
cinema complex,  a simulation  facility,  an active  water-ride and a video game
arcade.  To promote  customer  traffic,  the  center  will be  administered  and
operated by an experienced  management  company,  which will formulate a program
designed to foster the interest and involvement of the patrons in the activities
of the center,  including special price reduction  campaigns,  entertainment and
fashion  events,  lotteries,  contests,  etc. The  entertainment  and commercial
center  was  opened  to  the  public  in  June  2003.   Through  May  31,  2003,
approximately  141,438 square feet of the  entertainment  and commercial  center
have been leased to various retailers, of which approximately 87,425 square feet
have been leased to three anchor  tenants,  including an eight (8) screen cinema
complex, a large retailer group and a pharmacy-perfumery.

         BIO-TECHNOLOGY INVESTMENTS

         Since its establishment in early 2000, Elscint Bio-Medical Ltd. ("EBM")
has focused on investments in early stage bio-technology companies. During 2002,
EBM  expanded  its  investment  in  Gamida,  but  decided  to  postpone  for the
foreseeable future other planned investments in additional  companies due to the
slowdown in the Israeli economy and projected  difficulties in raising financing
for such  businesses.  Currently,  EBM does not  have any  plans to  expand  its
activities.

HIGHLIGHTS OF 2002

         The  following  were the  highlights  of our  business  activities  and
investments during 2002 and through May 31, 2003:

          o    The sale of the manufacturing facility in Ma'alot to an unrelated
               third party;

          o    The long term lease o the hotel  property  located on Euston Road
               in London,  England  (previously Shaw Park Plaza) to an unrelated
               third party for a period of 25 years;

          o    The close down of the Bucuresti  Hotel in Bucharest,  Romania for
               renovation and refurbishment;

          o    The completion of renovation works at the Astrid Park Plaza hotel
               in Antwerp,  Belgium and the  commencement  of construction of an
               oceanarium attraction within the facility;

          o    The payment of a dividend by the Company to its shareholders; and

          o    The  completion  of the  construction  of the  Entertainment  and
               Commercial Center in Herzlia.



                                      -22-
<PAGE>

         HOTEL AND LEISURE

         Following the opening of the Victoria London and Sherlock Holmes hotels
in London during 2001, Elscint now has interests in six operational hotels:

          o    the Victoria in Amsterdam;

          o    the Utrecht Park Plaz in Utrecht, The Netherlands;

          o    the Astrid Park Plaza in Antwerp, Belgium;

          o    the Sandton Park Plaz in Johannesburg, South Africa;

          o    the Victoria London Park Plaza in London; and

          o    the Sherlock Holmes Park Plaza, also in London.

         In  collaboration  with the Red Sea Hotel Ltd. group of companies ("Red
Sea") and Park Plaza,  Elscint  continued to implement  the  management  program
designed to optimize management procedures,  streamline cost control systems and
improve performance where possible.

         In January  2003,  we leased the  property  situated  on Euston Road in
London  (formerly  operated as the Shaw Park Plaza) (the "Euston Road Property")
to an unrelated  third party for a period of 25 years.  See " - Property,  Plant
and Equipment".

         During 2002, Elscint completed the renovations of the Astrid Park Plaza
in Antwerp,  Belgium by expanding  the lobby to an area of 7,000 square feet and
inaugurating  a bistro on the lobby floor which has proven a popular  venue.  In
addition,  the  commercial  areas of the property have been closed down and work
has commenced on converting this area into an oceanarium  attraction.  The works
on this renovation are scheduled to be completed by Summer 2003.

         In December 2002, Elscint closed down the Bucuresti hotel in Bucharest,
Romania, in order to facilitate the complete renovation and refurbishment of the
facility and its conversion into a hotel of international standard.  Elscint has
succeeded  in  reducing  the work force at the hotel from 890  employees  to 120
employees  as at May  31,  2003.  As at May 31,  2003,  Elscint's  wholly  owned
subsidiary  increased its holdings of the outstanding shares of the hotel owning
company to 69%, and the $1 million paid for the additional  shares are held in a
special account and will be invested  during the course of the renovation  works
in  accordance  with  a  schedule   negotiated  with  the  local   environmental
authorities.  The  planning  and  design of the  renovation  works  are  nearing
completion,  and we intend to obtain the necessary  building permits by December
2003 in  order to  enable  the  commencement  of  works  by  early  2004.  It is
anticipated that the renovation works will be completed within 24 months.

         In  addition,  109  out of  the  230  apartment  units  comprising  the
apartment hotel (which forms part of the Bucuresti  complex) have been renovated
during the  beginning of 2003 at a cost of $2.5  million.  The  apartment  hotel
enjoys a high occupancy rate and generates revenues of approximately  $3,200,000
per annum. Elscint intends to improve the quality of the services offered to its
apartment hotel residents.

         During 2002,  Elscint also  continued its plans for the  development of
two additional hotel projects. In Hungary, the project for the conversion of the
National Ballet Institute Building,  centrally located on Budapest's prestigious
Andrassy  Boulevard,  into a western business orientated hotel,  proceeded.  All
tenants  (except  one) have now been  vacated  from the  building by  agreement.
Applications  for  building   permits  are  now  pending,   and  we  expect  the
construction  works to commence during late- 2003, and to be completed within 15
months  thereafter.  The  construction  of the Riverbank Park Plaza Hotel on the
site  acquired  in March  2000 on the banks of the  Thames  River has  continued
through  2002 and is  expected  to be  completed  by late 2004.  This hotel will
comprise of over 550 rooms.

         During 2002, the  development  of the Lake Monfort  Project in northern
Israel was delayed,  due  primarily  to the severe  economic  situation  and the
decrease in demand for tourism  facilities  in Israel.



                                      -23-
<PAGE>

Elscint will continue to assess its plans for the development of this project in
light of the  security  situation  in the  region  and the  influence  that such
situation may have on the local tourist market.

         SALE OF THE MANUFACTURING FACILITY IN MA'ALOT

         On December  31, 2002 the  Company  sold (on the basis of an  agreement
signed on November 13, 2002), substantially all of the assets and the assignment
of certain  liabilities  relating to the manufacturing,  development,  assembly,
engineering  and integration  operations  conducted by Elscint at the factory in
Ma'alot  in  Northern  Israel.   The  buyer  did  not  assume  tax  liabilities,
liabilities arising out of breaches by Elscint of assigned  contracts,  employee
related   liabilities  for  the  period   preceding  the   consummation  of  the
transaction,  and certain retained environmental liabilities.  On the basis of a
closing balance sheet, the buyer paid approximately  $20.5 million,  including a
goodwill payment,  of which  approximately  $10.2 million was placed into escrow
pending  verification of the purchase price, within 45 days of the closing,  and
collection of accounts  receivable within 90 days of closing. As of May 31, 2003
the full amount of the escrow  deposit has been released to Elscint  (except for
approximately  $155,000 paid to the buyer for certain  adjustments  and accounts
receivable  not  collected  within  the 90 day  period).  As a  result  of  this
transaction, Elscint recorded a capital gain of approximately $8 million.

         BIO-TECHNOLOGY INVESTMENTS

         In April 2002,  EBM  acquired  from a third party  450,000,  additional
shares in Gamida for approximately $1,042,000,  including the shares held by its
former CEO in Gamida (see below).

         As of the  December  31,  2002,  EBM  held  approximately  37.1% of the
outstanding shares of Gamida (33.6% on a fully-diluted  basis) and had the right
to appoint one quarter of the members of Gamida's board of directors.

         In early 2003,  Gamida  signed an agreement  with Teva  Pharmaceuticals
Ltd.  ("Teva"),  for  the  investment  by  Teva  of $3  million  in  Gamida  for
approximately  9% of  Gamida's  outstanding  share  capital.  Gamida  signed  an
additional  memorandum of  understanding  with Teva,  pursuant to which Teva was
awarded  an  option  for  future  cooperation  with  Gamida  with  regard to the
technology that Gamida is developing,  and subject to conditions  agreed between
those parties.

         In November 2002, the  employment  agreement  between EBM and Dr. Amnon
Gonenne,  its former Chief Executive  Officer,  was terminated.  Pursuant to the
termination  agreement,  EBM purchased from Dr. Gonenne all of his securities of
both  EBM  and  its  portfolio  investee  companies,  in  consideration  for the
repayment  of the loans  awarded by EBM to Dr.  Gonenne in order to finance  the
acquisition of those securities.

         Concurrently  with the  termination of the employment  agreement of Dr.
Gonenne, EBM's management postponed for the foreseable future further investment
opportunities in  bio-technology  related companies pending its re-assessment of
the market situation.

         PAYMENT OF DIVIDEND

         In October  2002,  Elscint  paid a dividend of $1.10 per each  Ordinary
Share, aggregating approximately $19.3 million.

BUSINESS OVERVIEW

         The following table indicates our revenues in each geographic market in
which  Elscint has operated  during each of the last three years (not  including
revenues derived from discontinuing operations):



                                      -24-
<PAGE>

<TABLE>
<CAPTION>
                                                                                    Convenience
                                                                                    translation
                                    FISCAL YEAR ENDED DECEMBER 31,                  for year ended
                                           In NIS thousands                         December 31, 2002
                        2002                2001                 2000                 $(THOUSANDS)
                       -------             -------             -------              -----------------


<S>                    <C>                 <C>                 <C>                     <C>
WESTERN EUROPE         173,598             109,845             106,684                 36,647
EASTERN AND
CENTRAL EUROPE          35,392              30,958                   -                  7,471
ISRAEL                   1,538              10,221              20,367                    325
OTHERS                   1,660               1,095               1,404                    351
                       -------             -------             -------                 ------
                       212,188             152,119             128,455                 44,794
                       =======             =======             =======                 ======

</TABLE>

         HOTELS AND LEISURE

         Elscint has certain rights in the following hotels and projects:

     o    Victoria Hotel (operational hotel)    Amsterdam, The Netherlands
     o    Utrecht Park Plaza Hotel              Utrecht, The Netherlands
          (operational hotel)
     o    Astrid Park Plaza Hotel               Antwerp, Belgium
          (operational hotel)
     o    Sandton Park Plaza Hotel              Johannesburg, Republic of
          (operational hotel)                    South Africa
     o    Victoria Park Plaza Hotel             London, United Kingdom
          (operational hotel)
     o    Sherlock Holmes Park Plaza Hotel      London, United Kingdom
          (operational hotel)
     o    Bucuresti Hotel (under renovation)    Bucharest, Romania
     o    Ballet Building Project               Budapest, Hungary
          (under development)
     o    Riverbank Hotel Project               London, United Kingdom
          (under development)
     o    Monfort Lake Project                  Ma'alot, Israel
          (under preliminary development)


         Elscint's  ownership  percentage  in the  foregoing  hotels  and  hotel
projects  varies,  and the  remaining  interests  (in those  hotels that are not
wholly-owned by Elscint) are owned by various unrelated third parties, including
subsidiaries of Red Sea.

         Set forth  below is  certain  information  relating  to the  hotels and
projects:

<TABLE>
<CAPTION>

                                Elscint's          Total                               Average Occupancy
       Name and Rate             Holding      Constructed Area                          During 2002 and
          of Hotel              Percentage       (Sq. Ft.)          Total Rooms        through May 2003      Other Information
----------------------------- --------------- ----------------- --------------------- -------------------- -----------------------
<S>                             <C>                <C>          <C> <C>                     <C>
Victoria Hotel, Amsterdam,      50%                220,000      305 (27 Suites)             89.8%          o  business center
Four Stars                                                                                                 o  health center

Utrecht Park Plaza Hotel,       50%                 55,880      120 (40 executive           67.8%          o  70 parking spaces
Utrecht, The Netherlands,                                       rooms)                                     o  11 conference rooms
Four Stars

                                      -25-
<PAGE>

Astrid Park Plaza Hotel,        100%               223,300      229 (19 business            67.8%          o  part of complex
Antwerp                                                         suites)                                       that includes an
Belgium, Four Stars                                                                                           oceanarium (under
                                                                                                              developement)

Sandton Park Plaza, Hotel,      33.33%              89,100      138 (61 suites)             45.1%          o  business center
Johannesburg, Four Stars

Sherlock Holmes Hotel,          45.0% equity        67,460      119 (17 executive           66%            o  fitness center
London                          50% voting                      studios, 3 split                           o  main meeting room
                                                                level "loft" suites)                          for 600 people
                                                                                                           o  6 board rooms

Bucuresti Hotel Complex,      69%                  901,000      446 (24 suits) in     The hotel is         o  adjacent
Bucharest, Romania; four                                        the hotel; 230 in     closed for              historically
star hotel and an apartment                                     apartment hotel       renovation.             protected building
hotel                                                                                 Apartment hotel -       (restaurant)
                                                                                      90%                  o  health center

Victoria Park Plaza Hotel,      50%                242,000      287 rooms (22               73.1%          o  Executive lounge
London (standard of                                             business suites and                        o  health club
building equivalent to                                          12 main suites)                            o  main conference
"four star deluxe")                                             12 apartments                                 room for up to 750
                                                                                                              people
                                                                                                           o  13 additional
                                                                                                              convention health
                                                                                                           o  underground
                                                                                                              parking facilities

Riverbank (Thames) Project,   45% equity           337,100      381 rooms             The hotel is under   o  full leisure center
London, preliminary           50% voting                        156 boutique hotel    construction         o  two main
development                                                     style rooms                                   conference rooms,
                                                                                                              each with capacity
                                                                                                              of up to 650 people
                                                                                                           o  20 additional
                                                                                                              conference rooms

Ballet Building, Budapest,      50%                143,000      196 rooms             The hotel is under   o  construction works
Hungary - in development                                                              construction            to commence during
                                                                                                              2003
</TABLE>


                                      -26-
<PAGE>

         Golden Wall Option
         ------------------

         During 2001, BEA Hotels N.V. ("BEA"), a wholly-owned  subsidiary of the
Company, was granted an option from Park Plaza,  exercisable until June 30, 2002
(subsequently extended to September 30, 2003) to purchase from Park Plaza 33% of
the rights in Golden Wall Investments Ltd. ("Golden Wall"), a subsidiary of Park
Plaza that was incorporated for the purpose of acquiring the business (including
hotel management agreements, management rights, rights to use trade names, etc.)
of the Park Plaza chain in Europe.  As part of the  agreement,  BEA granted Park
Plaza an  unsecured  loan of $5 million  ("Option  Advance"),  convertible  into
shares of Golden Wall (in the event the option is  exercised)  or repayable  (in
the event the option is not exercised).

         Pursuant to a Restated  Agreement  dated as of December 30,  2002,  the
parties  agreed that  approximately  $1.67  million of the Option  Advance shall
constitute a restated loan made by BEA to Park Plaza  bearing  interest at LIBOR
plus 1% per annum,  and  repayable  in one bullet  payment on December  31, 2006
(provided  that upon the sale of any hotel  asset in which Park  Plaza  holds an
equity interest  jointly with BEA, Park Plaza's share of the proceeds  generated
by such sale will be applied to the reduction of the Restated  Loan amount).  As
security for the repayment of this Restated  Loan,  Park Plaza has undertaken to
grant to BEA a pledge over its equity  rights in the jointly  owned hotel assets
as well as a lien over its  right to  receive  proceeds  out of the sale of such
assets.  In the event that BEA elects to exercise  the option prior to September
30, 2003 on terms  acceptable to it, the remaining  amount of the Option Advance
(approximately  $3.3 million) will  constitute full payment for one-third of the
outstanding  shares of Golden  Wall.  However,  if BEA  declines to exercise the
option  then the  amount  of $3.3  million  will be added to the  amount  of the
restated  loan and  shall be  subject  to the same  conditions  as to  interest,
repayment and security.

         ENTERTAINMENT AND COMMERCIAL CENTER IN THE HERZLIA MARINA

         The total estimated  project cost of the  entertainment  and commercial
center is  approximately  $150 million  (approximately  NIS 710 million).  As of
March 31, 2003,  the total  estimated  remaining  cost  required to complete the
entertainment and commercial center was approximately $40 million (approximately
NIS 190 million).  As of May 31, 2003 the  construction of the facility has been
completed and efforts are currently  concentrated upon final decoration,  tenant
fit outs and completion of the entertainment  facilities.  We expect to open the
center to the public during June 2003.

         As of May 31,  2003,  78  leases  had  been  signed  for  space  in the
entertainment   and  commercial   center,   including   agreements   with  three
anchor-lessees (a cinema, a large retailer group and a pharmacy-  perfumery) for
a total area of approximately 13,140 square meter. The rental periods range from
four to ten years for the "anchor" areas to shorter periods for large brand name
shops and other  regular  shops,  not  including  an option to extend the lease.
Total annual rent for the whole project is expected to be  approximately  $14-15
million (approximately NIS 66.3 million - NIS 71.0 million).

         BIO-TECHNOLOGY INVESTMENTS

         Gamida develops proprietary  technology for multiplying  embryonic-like
cells called "stem cells" outside the body,  that could  potentially  expand the
use of stem cells in therapy. Stem cells are  undifferentiated,  primitive cells
with the ability to multiply and  differentiate  into  specific  kinds of cells.
Stem cells hold the promise of allowing researchers to grow specialized cells or
tissue, which could be used to treat injuries or disease. Stem cells could serve
in the near future as replacement of bone marrow for cancer patients  undergoing
radiation  therapy.  In addition,  stem cells could become the vehicle of choice
for gene  therapy  and,  ultimately,  be used for  tissue  regeneration.  EBM is
entitled to appoint two directors to the board of directors of Gamida.

         Umbilical  Cord Blood Bank. As a complement to its investment in Gamida
and the  fulfillment  of its  quest to  become a  leader  in the  bio-technology
sector,  EBM expects to establish  an  international  umbilical  cord blood bank
("UCBB")  during 2004. The UCBB will provide a broad-based  source of stem cells
that are  collected  from  umbilical  cords  immediately  after  birth  and then
processed and stored for



                                      -27-
<PAGE>

various  medical  uses.  EBM  expects  that the UCBB will  supply  its  products
worldwide.  In this  regard,  EBM  intends to  cooperate  with  several  leading
research  groups in Israel which are active in research and  development  in the
broader field of stem cell.  Within the framework of the proposed  activities of
the UCBB,  EBM also intends to establish a highly  sophisticated  laboratory for
the genetic  analysis of stem cells, and for conducting other genetic tests on a
commercial  basis. In this regard,  EBM is negotiating  with the Ezer M'Zion,  a
charitable  organization  (which  maintains the largest bone marrow  registry in
Israel) with a view to  establishing  a joint  venture for the  operation of the
laboratory.

         LuriDent.  EBM has terminated the term sheet, signed in April 2001, for
an investment in LuriDent Ltd. ("LuriDent"), a company that develops proprietary
platform  technology  which  creates  controlled  release  formulations,   which
preferentially  adhere to the mucosa  tissue.  LuriDent  has  developed  a first
generation mouth rinse, which contains a known antibacterial  agent. EBM intends
to initiate legal proceedings against LuriDent for the refund of certain amounts
advanced on account of the proposed investment.

         Oncologics.   EBM  is  currently  assessing  whether  to  continue  its
investment  in  Oncologics  Ltd.  ("Oncologics"),  to which  EBM had  previously
provided a line of credit of up to $250,000.  Of this amount, EBM has extended a
$167,000 loan to Oncologics for the  performance of studies  intended to advance
its technological proof of concept stage. Oncologics has identified a biological
defect  in cancer  cells  which  renders  them  resistant  to  chemotherapy.  If
corroboration  of this finding is established,  Oncologics'  technology could be
used to identify  patients who are resistant to  chemotherapy  and offer them an
alternative therapy.  This could improve the clinical outcome of cancer patients
and save substantial costs of inadequate therapy. As consideration for the loan,
EBM has the  option to  purchase  up to 40% of  Oncologics'  capital  stock at a
pre-money  value of $1 million.  In addition,  in the event  Oncologics does not
comply with the terms of the foregoing  loan, EBM will have the right to convert
the loan into shares of capital stock of Oncologics.

COMPETITION

         HOTEL AND LEISURE

         The lodging industry in Europe has  traditionally  been classified on a
grading  system,  with five- star  representing  a luxury  hotel and  one-star a
budget  hotel.  All of our  hotels  enjoy a  four-star  grading,  or  qualify as
four-star  establishments,  while  some are  designated  as "Four  Star  Deluxe"
establishments.

         Each of our hotels  competes with other hotels in its  geographic  area
for clientele, including hotels associated with franchisers, which may have more
extensive  reservation  networks  than those  which may be  available  to us. We
compete with other facilities on various bases, including room prices,  quality,
service,  location and amenities  customarily  offered to the traveling  public.
Levels of demand are  dependent  upon many factors  including  general and local
economic  conditions  and  changes  in levels of  tourism  and  business-related
travel. Our hotels depend upon both business and tourist travelers for revenues.

         In addition,  we compete with other companies in the hotel industry for
opportunities  to  purchase or build new hotels.  These other  companies  may be
larger than us and have greater financial  resources.  Our hotel in Utrecht, The
Netherlands  competes  directly  with the  Holiday  Inn hotel  (which is located
directly  opposite our hotel),  the Mercury Hotel and the President  Hotel.  Our
hotel in Antwerp,  Belgium competes directly with the Hilton, Holiday Inn, Crown
Plaza and Park Lane  hotels,  although we believe  that the average room rate in
our hotel is  competitive.  The Victoria Park Plaza Hotel in London is in direct
competition  with a number of three-star  plus and four-star rated hotels within
relatively  close  proximity  of the Victoria  railway  station,  including  the
Thistle  Grosvenor  and the Victoria  Holiday Inn hotels,  both of which benefit
from their close  proximity to Victoria  station,  as well as the Thistle  Royal
Westminster, Rubens, Status Street, Ennins, St. James's Court and Merchant Court
hotels. In addition, there is a considerable number of traditional budget hotels
in the proximity of the


                                      -28-
<PAGE>

Victoria Hotel. The hotel we are planning to construct in Budapest, Hungary will
compete directly with the Kempinski,  Marriott,  Hilton,  Inter-Continental  and
Hyatt hotels. The Bucuresti Hotel in Bucharest competes with the Hilton situated
directly across the street, the Intercontinental,  and the newly opened Marriott
Grand Palace hotel.

         Although  the hotel  industry in Europe is highly  competitive,  and is
witnessing an increase in room supply in some areas,  the outlook for the medium
to long term is positive.  Notwithstanding a slight slow-down in the latter part
of 1998,  the market  had  strengthened  during  1999 and 2000.  During  2001 we
experienced  a  reduction  in hotel  demand  in  London,  which is  attributable
primarily  to the outbreak of the foot and mouth  disease in the United  Kingdom
and  secondarily to a slow-down in the U.S.  economy,  especially  following the
events of September 11, 2001.  The goal of our hotel  business is to acquire and
manage  four-star  hotel  properties  which  provide the  business  and vacation
traveler with luxury  quality  accommodations,  conveniently  located near major
transportation stations and commercial centers, at four- star prices.

         ENTERTAINMENT AND COMMERCIAL CENTER

         There is a large  number of shopping  malls  located in the Greater Tel
Aviv area and in its satellite cities, including Herzlia, Ra'anana, Petach-Tikva
and Rishon  LeTzion.  A large shopping mall has recently been opened in Herzlia,
approximately  1.5  kilometers  distant  from  the  site of our  commercial  and
entertainment  center  at  the  Marina  in  Herzlia.  All  these  malls  compete
vigorously not only for tenants but also for customers. Elscint is attempting to
establish  a  competitive  edge,  both due to:  (a) the unique  location  of the
Marina,  overlooking the  Mediterranean  Sea; and (b) the strong emphasis on the
entertainment facilities to be offered to its patrons.

         BIO-TECHNOLOGY INVESTMENTS

         Start up companies,  including  companies in the bio-technology  field,
tend to operate in a highly competitive  environment.  In order to succeed,  the
products or services  require a unique "added value"  factor,  relatively  brief
concept-to-market parameters, and aggressive marketing. Gamida faces competition
from large  international  companies with access to financial resources and with
well-  established   research  and  development   capabilities.   However,   the
bio-technology field, which is dominated by large multi-national  conglomerates,
although  affected  by  global  pressures  on the  investment  market,  is  more
resilient to market trends than the more volatile high technology industry.

SEASONALITY

         HOTEL AND LEISURE

         The business  activities of the various  hotels,  especially in Europe,
are  influenced by several  constant  factors that affect the revenues and gross
operating  profit  ("GOP"),  either on an  absolute  basis or  relative to other
periods  during the year.  These  factors  include  (i)  seasonality  of general
business  activity  (which  affects  the  volume  of  traffic  in  the  business
community),  (ii) holiday seasons (such as Christmas and Easter),  and (iii) the
weather  conditions.  These factors generally cause the first and third quarters
to be weaker than the second and fourth quarters.

         The  first  quarter,  which is the  period  immediately  following  the
Christmas  season  and the  height  of the  European  winter,  is  traditionally
characterized by lower revenues and GOP resulting from lower occupancy rates and
reduced room rates.  During the third quarter,  there is generally a decrease in
local business  activities  due to the summer  holidays  which,  together with a
tendency  for  local  tourist  traffic  to seek out  resort  destinations,  also
generates slower results, while the increase in international tourism is to some
extent offset by lower room rates, particularly for groups.

         However,  the  second  quarter  shows  a  marked  increase  due to more
favorable weather conditions (spring to early summer) and the Easter holiday and
the  corresponding  revival of both  business  and tourist  activity,  while the
fourth  quarter is usually the strongest  period in the lead up to the Christmas
and New Year's  holiday season and a significant  year-end  increase in business
activities.

                                      -29-
<PAGE>

         For our South African hotel,  generally the holiday seasons  (Christmas
and Easter)  show  insignificantly  stronger  results,  although  the  depressed
economy and the political uncertainty of the region have reduced occupancy rates
to the point that seasonal comparisons are largely irrelevant.

         ENTERTAINMENT AND COMMERCIAL CENTER

         The entertainment and commercial center may experience  seasonal shifts
in retail  activity.  Generally  speaking,  peak  holiday  seasons  (such as the
Passover, the Jewish New Year and other Jewish and national holidays), will show
an increase in patron  traffic,  both for the purchase of holiday  gifts and for
utilizing  the  entertainment  facilities  offered  by the  center.  The  period
immediately  following  such  periods  tend to show a decrease  in the number of
patrons  visiting the center and a corresponding  slow down in retail  activity.
However, this may be offset by the fact that the indoor facilities will offer an
air-  conditioned  environment  for shoppers and patrons  which is of particular
significance   during  the  warm   summer   months  in  Israel   (April/May   to
October/November),  and  particularly  in July and August  when  schools  are in
recess  and it is  customary  in Israel  to take  summer  vacations.

GOVERNMENTAL REGULATION

         HOTEL AND LEISURE

         The Netherlands
         ---------------

         In The  Netherlands,  there  are a number of  commercial  organizations
regulating the hotel and restaurant  industry,  which govern methods of engaging
in agreements,  advertising tariffs and advertising the hotel. These regulations
also govern the sale of alcohol to the  public,  terms of  employing  personnel,
methods of  registering  the hotel and creating a method of rating the hotels in
the Benelux countries (Belgium, The Netherlands and Luxembourg).

         In  the  Benelux  countries,  there  is a  "Benelux-Hotelclassificatie"
(Benelux hotel  classification  system).  In The Netherlands this classification
system  is  conduced  by  the  "Bedrijfschap  Horecsa  en  Catering",   a  trade
organization  established by law in collaboration with the consumer society ANWB
(which is a  consumer  society  comparable  to the AAA in the  United  States of
America).  Our  hotels in The  Netherlands  have  received a  four-star  rating.
Restaurants  and hotels  operating in The  Netherlands  must  operate  under the
management of a general manager and a local manager.

         According  to Dutch  law,  where a company  sells its  business,  it is
obligated to transfer all employees  together  with the business.  The hotel and
restaurant  industry in The Netherlands has collective  labor  agreement,  which
provides a grading  system for employees in the hotel and  restaurant  industry.
For each  grade  there is a minimum  wage  mandated.  Among  other  things,  the
provisions of the collective  labor  agreement  obligate the employer to provide
money for employees for a number of funds.

         The total  obligations of the companies in The  Netherlands  due to the
termination of employees,  in accordance  with the laws in The  Netherlands  and
labor  agreements in effect,  are covered by (i) current  payments to government
institutions  for provisions for the retirement of employees or their dismissal;
(ii) current  payments to life  insurance  companies for  pensions;  and (iii) a
provision included in their financial reporting.

         Belgium
         -------

         Astrid  Park Plaza has a license  for  operating  the Astrid Park Plaza
hotel in Antwerp, Belgium.

         In  Belgium,   the  grading  of  hotels  is   conducted  by  a  tourism
organization  which  operates  under the authority  of, and in  accordance  with
regulations  issued by, the Belgian  Ministry of Tourism.  Hotels  which are not
graded are prohibited from trading as a hotel. This  organization  regulates and
grades hotels and  restaurants  including  supervising the method of engaging in
agreements and advertising tariffs and the hotel. The regulations also establish
the  rating of hotels  using  the  "stars"  method.  As of April 30,  2002,  the
evaluation  of the Astrid Park Plaza hotel has been  completed and the hotel has
received an official  H-4 rating,  which is  equivalent  to a "Four Star Deluxe"
rating.



                                      -30-
<PAGE>

         In addition,  various licenses and permits are required to be issued by
governmental  authorities  (including permits for the operation of a restaurant,
the sale of alcohol and food and beverage licenses,  etc.) and in some instances
by the  municipal  authorities  (including  illumination,  operation of a public
terrace  during summer  months,  etc.).  Governmental  authorities  also conduct
periodic  reviews  of  installations  and  systems  operating  within  the hotel
(elevators,  sprinkler systems,  sanitation,  etc.). Regulations also govern the
employment of employees,  the observance of which is monitored by the employee's
union and regulated by governmental authorities.

         United Kingdom
         --------------

         The  principal   regulatory   requirements  for  the  construction  and
operation of hotels in the United Kingdom are as follows:

     o    Approval of the appropriate building control authorities for the plans
          and designs of the proposed hotel, culminating in the grant of a valid
          building permit;

     o    Building regulation consents required for the occupation and operation
          of the building,  particularly  in connection  with means of escape in
          the case of fire;

     o    Licenses for sale of alcohol;

     o    Compliance with various United Kingdom and European Union  regulations
          in connection with employees, in particular working hours regulations;

     o    Compliance  with health and safety  regulations,  in particular  those
          concerning food and hygiene; and

     o    Gaming licenses (where applicable).


         The  type  and  nature  of  the   licenses   will  vary   according  to
circumstances.  In particular, there are a number of different licenses that may
be  relevant  in   connection   with  the  sale  of  alcohol  and  operation  of
entertainment facilities, depending on the nature of the services to be provided
by the hotel to its patrons.

         Hungary
         -------

         The fact that the Ballet Institute  Building has a historical  landmark
status,  under the protection of the Hungarian Historical Building Office (which
has  authority  for the  administration  and  preservation  of  such  building),
mandates  that the  planning  consents  and  requisite  permits for the proposed
renovation of the Ballet  Institute  Building and its  conversion  into an hotel
must be applied for and obtained from the Historical  Building Office.  In order
to obtain  such  consents  and  permits,  it is  necessary  to  ensure  that the
renovation   plans  provide  for  the   restoration  of  the  building  and  the
preservation of its historical status.

         Various  government  decrees  establish  the criteria for the rating of
hotel  establishments.  These  criteria  include:  size of rooms;  suite-to-room
ratio;  number of  restaurants  and  other  catering  facilities;  level of room
service  provided;  level of room amenities  provided;  air-conditioning;  guest
facilities; and the quality and periods of food and beverage services provided.

         Following  the  completion  of the  renovation  works,  it will also be
necessary  to obtain an  operating  permit,  which will only be issued after the
following consents and approvals have been obtained:

     o    The  approval of the local  State  Public  Health and Medical  Officer
          Service for the commercial accommodation;

     o    Animal  Health  Station and the local State Public  Health and Medical
          Officer Service for businesses or catering establishments which use or
          market food or ingredients of animal origin;

     o    The  Fire   Department   as  fire  control   authority   for  business
          establishments,     commercial    accommodations    and    hospitality
          establishments; and



                                      -31-
<PAGE>

     o    The competent  building  authority (in Elscint's  case, the Historical
          Building  Office)  certifying  that the  developer  has  executed  the
          renovation  and  construction  works in  compliance  with the  permits
          issued to it.

         The  operating  permit is issued for the hotel as a business  activity.
Other  activities  conducted  within the premises (such as:  restaurants,  bars,
shops,  health clubs, etc.) require special operating permits,  which are issued
by the local municipal authorities. The sale of alcohol on the premises requires
a permit from the customs authorities.

         South Africa
         ------------

         The Sandton Hotel is required to maintain,  and it currently maintains,
licenses  for the sale of alcohol on the  premises,  a trading  license,  and to
comply with  national and  municipal  regulations  regarding  food,  hygiene and
employees.

         Romania
         -------

         Building permits required under local applicable laws will be necessary
in order to execute the  renovation  works at the Bucuresti  Hotel.  In order to
enable the re-opening of the hotel  following  renovation,  the Bucuresti  Hotel
will be required to maintain  licenses  for the  operation of the building as an
hotel, the sale of alcohol on the premises and the operation of a restaurant and
tourism services. In addition,  the hotel will be required to maintain a trading
license, and to comply with national and municipal  regulations  regarding food,
hygiene, the operation and maintenance of the swimming pool, casino,  elevators,
health,  sanitation,  electricity,  fire hazards prevention,  and employees. The
hotel will also be required to obtain local  municipal and police  approvals for
the means of access to and egress from the hotel for motor vehicles.

PRINCIPAL CAPITAL EXPENDITURES AND DIVESTITURES

FISCAL YEAR 2000

         In  2000,   Elscint  made  the  following   capital   expenditures  and
divestitures:

         HOTEL AND LEISURE

         Riverbank (Thames), London
         --------------------------

         The company  owning the hotel paid an  aggregate  initial  amount of GB
Pound13.55  million as consideration  for the acquisition of the long term lease
rights to the land and certain property constructed thereon, and will pay annual
lease payments of GB Pound 500,000.

         Sherlock Holmes Hotel, London
         -----------------------------

         The  consideration  paid for the assets acquired was  approximately  GB
Pound 10.5  million.  The annual lease payment is GB Pound  450,000,  subject to
review every five years on the basis of "open market value".

         The Bucuresti Hotel Complex, Bucharest, Romania
         -----------------------------------------------

         The  total  investment  made  by BEA in  respect  of  this  transaction
(including ancillary costs) totaled approximately $27 million.

         Monfort Lake Project, Israel
         ----------------------------

         Elscint  entered into a  development  agreement  with the Israeli Lands
Administration  and the local  municipal  authority,  pursuant to which  Elscint
undertook  to invest  approximately  NIS 9  million  in the  development  of the
infrastructure  of the land, which amount includes the capitalized  annual lease
payment for the initial lease term.



                                      -32-
<PAGE>

         SALE OF ELGEMS

         As consideration  for the transfer to General Electric Medical Systems,
a division  of General  Electric  Corporation  ("GEMS")  of its 50%  holdings in
ELGEMS,  a joint venture of Elscint and GEMS  ("ELGEMS"),  Elscint  received $30
million in the form of a promissory  note maturing on December 31, 2001,  linked
to the U.S. dollar and bearing no interest. The discounted value of the proceeds
of the sale at December 31, 2000 amounted to $28.3  million  (based on an annual
discount rate of approximately 6%). This transaction  resulted in a capital gain
of NIS 73 million.

         BIO TECHNOLOGY INVESTMENT

         EBM
         ---

         In early  2000,  EBM  invested  approximately  $1.5  million  in Gamida
(including the purchase of Dr. Gonen's shares),  at a pre-money  valuation of $7
million.

FISCAL YEAR 2001

         In  2001,   Elscint  made  the  following   capital   expenditures  and
divestitures:

         HOTEL AND LEISURE

         Riverbank (Thames), London
         --------------------------

         Following the acquisition and during 2001, the company owning the hotel
made additional payments on account of planning and design costs of GB Pound 3.2
million. The total amount the company invested in the project as of December 31,
2001 was GB Pound 17.9  million.  The annual rent of GB Pound 500,000 is subject
to reviews every five years.  We estimate the total cost of the project  (100%),
including land cost, to be approximately  GB Pound 84 million.

         Sherlock Holmes Hotel, London
         -----------------------------

         The  renovation of the Sherlock  Holmes Hotel  commenced in early 2001,
and as of December  31, 2001 was in its final stages of  completion.  During the
first  quarter of 2002,  Elscint's  subsidiary  invested GB Pound 0.6 million in
these  renovation  works.  The total cost of the  renovation  project  (100%) is
approximately GB Pound 9.5 million. As of December 31, 2001 we invested GB Pound
7.8 in the renovation of the hotel. We are financing the renovation of the hotel
through  shareholders'  loans  and a bank loan  (See:  "Item 5 -  Operating  and
Financial Review and Prospects - Loans").

         The Victoria Park Plaza Hotel, London
         -------------------------------------

         The Victoria Park Plaza Hotel was opened in September  2001, and became
fully  operational at the beginning of 2002. During 2001,  Elscint's  subsidiary
invested in the hotel GB Pound 10.7  million in the  construction  of the hotel.
The total cost of the project is approximately  GB Pound 56.8 million  excluding
finance costs. As of December 31, 2001,  Elscint's  subsidiary invested GB Pound
53.9 in the construction of the hotel. The construction of the hotel is financed
through  shareholders'  loans  and a bank loan  (See:  "Item 5 -  Operating  and
Financial Review and Prospects - Loans").

         The Ballet Building, Budapest, Hungary - Preliminary Development
         ----------------------------------------------------------------

         The  estimated  cost  of  obtaining   full  and  clean   possession  is
approximately $7.6 million,  of which our subsidiary has paid approximately $5.7
million during 2001 with the balance expected to be paid during 2002.

         Monfort Lake Project, Israel
         ----------------------------

         As of December 2001, Elscint invested NIS 9 million,  including initial
planning costs, relating to this project.



                                      -33-
<PAGE>
         BIO-TECHNOLOGY INVESTMENTS

         EBM
         ---

         In  September  2001,  EBM invested an  additional  $5 million in Gamida
(including the purchase of Dr. Gonen's  shares) at a pre-money  valuation of $20
million.

         OTHER INVESTMENTS

         Gilbridge
         ---------

         In October 2001,  Elscint  entered into an agreement with Mr.  Emmanuel
Gill, a former  Chairman of the board of  directors of Elscint,  for the sale by
Elscint to Mr.  Gill of 49% of the issued and  outstanding  shares of  Gilbridge
then held by Elscint  and the  assignment  of  Elscint's  rights  under  certain
capital notes made by Gilbridge to Elscint for a consideration of $5 million. It
was further  agreed that the loan of NIS 18.9 million  granted to Gilbridge  for
repayment out of initial  profits for the period ending on October 30, 2005 will
nevertheless  be  repayable  in full  on that  date  if  initial  profits  prove
insufficient.

FISCAL YEAR 2002

         In  2002,   Elscint  made  the  following   capital   expenditures  and
divestitures:

         HOTEL AND LEISURE

         Riverbank (Thames), London
         --------------------------

         The total  additional  amount  invested by the Company in this  project
during fiscal year 2002 was GB Pound 12.1 million (approximately $19.5 million),
including  annual  rent  payments  made by the Company to the owner of the land.
These  amounts were expended  principally  in respect of planning and design and
construction operations.  We have received approved in principal, in the form of
a term sheet, for a long-term construction facility in respect of this project.

         The Ballet Building, Budapest, Hungary - Currently in Preliminary
         -----------------------------------------------------------------
         Development
         -----------

         The total  investment in the project during 2002  (including  obtaining
full and clean  possession) was  approximately  Euro 9.1 million  (approximately
$9.5 million).

         Astrid Park Plaza hotel
         -----------------------

         The cost of the completion  and of the  renovation  works at the Astrid
Park Plaza hotel in Antwerp,  Belgium and the commencement of construction of an
oceanarium  attraction  within the  facility was  approximately Euro 2.6 million
(approximately $2.7 million).

         SUB-ASSEMBLY AND MANUFACTURING FACILITY

         Sale of Manufacturing Facility
         ------------------------------

         On December 31, 2002,  Elscint sold substantially all of the assets and
assigned certain liabilities  pertaining to the business previously conducted by
it at its factory in Ma'alot, to an unrelated third party. The sale price of the
facility was approximately $20.5 million, and Elscint recorded a capital gain of
approximately  $8 million.  (See " - Information  on the Company - Highlights of
2002").

         ENTERTAINMENT AND COMMERCIAL CENTER

         The total  additional  amount invested by Elscint's  subsidiary in this
project during fiscal year 2002 was $20.9 million.

         The total  cost of the  project  is  estimated  at  approximately  $150
million .


                                      -34-
<PAGE>

         BIO TECHNOLOGY INVESTMENTS

         In April  2002,  EBM  acquired  from a third  party  additional  shares
(450,000 ordinary shares) in Gamida for approximately $1,042,000.

PRINCIPAL CAPITAL EXPENDITURES AND DIVESTITURES CURRENTLY IN PROGRESS OR PLANNED

         During  2003,  we either made,  were in the process of making,  or were
planning to make, additional capital expenditures, as follows:

         HOTEL AND LEISURE

         Riverbank (Thames), London - construction
         -----------------------------------------

         The  additional  amount  invested by the Company in this project during
2003 was GB Pound 6.5 million  (approximately  $10.47 million)  including annual
rent payments  made by the Company to the owner of the land.  These amounts were
expended  principally  in  respect  of  planning  and  design  and  construction
operations.

         The Ballet Building, Budapest, Hungary - construction
         -----------------------------------------------------

         The  additional  amount  invested by the Company in this project during
2003 was  approximately  Euro 0.45 million  (approximately  $0.47 million).  The
estimated  cost of the  renovation and conversion of the building into an hotel,
which  will   commence  in  late  2003,   is   approximately   Euro  35  million
(approximately $36.7 million).

         Astrid Park Plaza hotel
         -----------------------

         The cost of the  construction of the oceanarium  attraction  within the
facility  up to May 31,  2003  was  approximately Euro 1.5  (approximately  $1.6
million).

         Bernard Shaw hotel
         ------------------

         In January  2003,  we leased the Euston Road  Property to an  unrelated
third party for a period of 25 years.  The rental payments are in a fixed amount
for each of the first four years of the lease, and thereafter  increase annually
at the rate of 2.5% through the end of the lease term.

         Bucuresti Hotel Complex, Bucharest, Romania - Renovation Planned
         ----------------------------------------------------------------

         We intend  to  extensively  renovate  the  Bucuresti  Hotel in order to
enable  compliance  with the  international  standards  required for a four star
business  hotel.  As at May 31, 2003, the renovation  program was in an advanced
stage of preparation.  On the basis of the budget currently under consideration,
we  anticipate   that  an  investment   of   approximately   Euro  36.5  million
(approximately  $38.3  million)  will be  required,  which we intend to  finance
through the issuance of equity, shareholders loans and bank loans.

         ENTERTAINMENT AND COMMERCIAL CENTER

         During  the  first  quarter  of  2003,  Elscint's  subsidiary  invested
approximately $9 million in this project.

         The total estimated cost of completing the project is approximately $40
million.

ORGANIZATIONAL STRUCTURE

         Elscint   is   a   member   of   the   Europe-Israel    (M.M.S.)   Ltd.
("Europe-Israel")  (an  Israeli  company  listed on the Tel Aviv Stock  Exchange
("TASE")) group of companies (See "Item 7 - Major Shareholders and Related Party
Transactions"). Control Centers Ltd., a privately-held Israeli company ("Control
Centers"), is currently the largest shareholder of Europe-Israel  (approximately
80%).

                                      -35-
<PAGE>
         The following table sets forth information about Elscint's  significant
subsidiaries:

<TABLE>
<CAPTION>
                                                                                  COUNTRY OF              Elscint's Direct/Indirect
NAME OF COMPANY                                            ABBREVIATED NAME       ORGANIZATION            Ownership (percentage)
--------------------------------------------------------   --------------------   ---------------------   --------------------------
                                                                                                          Equity        Voting
SUBSIDIARIES AND JOINTLY CONTROLLED COMPANIES
---------------------------------------------

<S>                                                        <C>                     <C>                    <C>           <C>
P.E.P. Trust Ltd.                                          ("P.E.P")               Israel                 100.0         100.0
Elscint Holdings and Investments N.V.                      ("E.H.")                Netherlands            100.0         100.0
BEA Hotels N.V.                                            ("BEA")                 Netherlands            100.0         100.0
BEA Hotels Eastern Europe.                                 ("BHEF")                Netherlands            100.0         100.0
Riverbank Hotel Holding B.V                                ("RBH")                 Netherlands             45.0          50.0
Albert Hotel Holdings Ltd.                                 ("Albert Holdings")     Jersey                  45.0          50.0
Albert Hotel Ltd.                                          ("Albert Hotel")        Jersey                  45.0          50.0
Shaw Hotel Holding B.V.                                    ("SHH")                 Netherlands             35.0          35.0

Euston Road Hotel Ltd.                                     ("ERH")                 Jersey                  35.0          35.0
Euston Road Hotel Operator Ltd.                            ("ERO")                 United Kingdom          35.0          35.0
Victoria London Hotel Holding B.V.                         ("VLH")                 Netherlands             45.0          50.0
Victoria Park Plaza Operator Ltd.                          ("VPPO")                United Kingdom          50.0          50.0
Alora Ltd.                                                 ("Alora")               Jersey                  45.0          50.0
Andrassy 25 Kft                                            ("Andrassy")            Hungary                 50.0          50.0

Park Plaza Hotel Sandton (Pty) Ltd.                        ("Sandton")             South Africa            33.3 *        33.3
Victory Enterprises II B.V.                                ("VE II")               Netherlands            100.0         100.0
Victory Enterprises III B.V.                               ("VE III")              Netherlands             50.0          50.0
Victoria Hotel C.V. - Limited Partnership                  ("VHCV")                Netherlands             50.0          50.0
Victoria Hotel & Restaurant Investments B.V.               ("VHRI")                Netherlands             50.0          50.0

Grandis Netherlands Holding B.V.                           ("Grandis")             Netherlands             45.0          50.0
Sherlock Holmes Park Plaza Ltd.                            ("SHPP")                United Kingdom          45.0          45.0
Astridplaza N.V.                                           ("AP")                  Belgium                100.0         100.0

Utrecht Victoria Hotel B.V.                                ("UVH")                 Netherlands             50.0          50.0
SC Domino International Hotels S.R.L.                     ("Domino")              Romania                100.0         100.0
SC Bucuresti Turism S.A.                                   ("Bucuresti")           Romania                 69 *          69 *
S.L.S. Sails Ltd.  (formerly S.L.S. Trust Ltd.)            ("SLS")                 Israel                 100.0         100.0
Elscint Biomedical Ltd.                                    ("EBM")                 Israel                 100.0         100.0


Elscint, Inc.                                              ("Elscint Inc")         United States          100.0         100.0
Elscint France SA                                          ("Elscint France")      France                 100.0         100.0
Elscint Belgium NV                                         ("Elscint Belgium")     Belgium                100.0         100.0
Elscint (Asia Pacific) Ltd.                                ("Elscint Asia")        Hong Kong              100.0         100.0
Products Medico - Hospitalares Elscint Ltd.                ("Elscint Brazil")      Brazil                 100.0         100.0
Elscint De Mexico S. De R.L. De C.V.                       ("Elscint Mexico")      Mexico                 100.0         100.0

</TABLE>

 (*) Effective shareholding or voting rights.

PROPERTY, PLANT AND EQUIPMENT

         Most of our business is conducted in buildings  leased from parties not
related to us, as described below:

         PROPERTY IN ISRAEL

                   TOTAL SQUARE               SQUARE FOOTAGE
LOCATION           FOOTAGE                    ACTUALLY USED

Tel Aviv           6,516                      6,516

                                      -36-
<PAGE>

         Elscint  uses leased  office space in Tel Aviv for its  management  and
administration  activities.  The lease on one  section of the  property  expires
during 2003 and the lease for the other section of the property  expires  during
2005. A part of the leased  space in Tel Aviv is leased from Control  Centers at
market prices.  For further details see "Item 7 - Major Shareholders and Related
Party Transactions - Related Party Transactions - Other - Lease".

         Elscint's  subsidiary that acquired the rights to the entertainment and
commercial  center in the Marina in Herzlia,  Israel,  will be registered as the
owner  of the  long  term  lease  rights  to  land  owned  by the  Israeli  Land
Administration.

         In  September  2000,  Elscint  won a  tender  for  the  acquisition  of
long-term lease rights to  approximately  22 acres,  situated on the bank of the
artificial Lake Monfort near Ma'alot in Northern Israel.

         PROPERTY IN THE UNITED STATES

         In June 1999, Elscint Inc., our wholly-owned  United States subsidiary,
purchased a building in Rockleigh,  New Jersey for  approximately  $5.2 million.
The building  consists of  approximately  40,000 square feet.  Until March 2001,
Elscint Inc. used  approximately  5,000 square feet for its office space.  Until
the purchase of the property, Elscint Inc. leased it from its prior owner.



                                      -37-
<PAGE>

         PROPERTY IN EUROPE AND SOUTH AFRICA

         Set forth below is certain  information  with respect to our hotels and
hotel projects in Europe and South Africa:

<TABLE>
<CAPTION>
                           SIZE OF PROPERTY   PERCENTAGE OF OWNERSHIP
      NAME OF HOTEL            (SQ. FT.)             BY ELSCINT                         ENCUMBRANCES; MISCELLANEOUS

<S>                             <C>                     <C>             <C>
Victoria Hotel, Amsterdam       220,000                 50%             o    land pledged as collateral to secure payment of loan

                                                                        o    first priority mortgage and first priority lien on
                                                                             all moveable assets
Utrecht Park Plaza,              55,880                 50%             o    long term lease rights pledged as collateral to
Utrecht                                                                      secure payment of loan

                                                                        o    first priority lien on all moveable assets

Astrid Park Plaza,              315,000                 100%            o    none
Antwerp

Euston Road, London             275,000                 35%             o    first priority mortgage on land and on moveable assets

                                                                        o    first ranking pledge on shares of subsidiary that
                                                                             owns the rights to the land

Sandton Park Plaza               89,100                33.33%           o    first priority mortgage on land
Hotel, Johannesburg,

South Africa                                                            o    lien on all moveable assets

Victoria Park Plaza,            242,000                 50%             o    first priority mortgage on land
London

                                                                        o    first priority lien on shares of subsidiary that owns
                                                                             the rights to the land

                                                                        o    lien on all moveable assets

Ballet Building, Budapest       170,000                 50%             o    no loans have been taken. Property is unencumbered.

Riverbank (Thames)              327,700              45% equity         o    long term lease rights for 125 years
property, London

                                                     50% voting         o    first priority mortgage on land

                                                                        o    first ranking lien on shares of subsidiary that owns
                                                                             the rights to the lease

                                                                        o    lien on all moveable assets

Sherlock Holmes Hotel,           65,600              45% equity         o    sub-lease for 99 years and an option to extend to a
London                                                                       total of 125 years

                                                     50% voting         o    lien on the sub-lease rights

Bucuresti Hotel Complex,        901,000                 69%             o    Property and movables are  unencumbered.
Bucharest, Romania

</TABLE>


         In January  2003,  we leased the Euston Road  Property to an  unrelated
third party for a period of 25 years.  The rental payments are in a fixed amount
for each of the first four years of the lease, and thereafter  increase annually
at the  rate  of  2.5%  through  the  end of the  lease  term.  (See  "Item  4 -
Information  on the  Company -  Highlights  of  2002").  The lessee has placed a
deposit in the amount of GB Pound

                                      -38-
<PAGE>

2.5 million  (approximately  $4.0  million)  that will serve as security for the
rent  payments.  The lessee has also been  granted an option to extend the lease
agreement by two additional periods of 15 years each.

           ITEM 5. -- OPERATING AND FINANCIAL REVIEW AND PROSPECTS

GENERAL

          Since  October  1,  1999,  the  Company  has been using the NIS as its
currency and has been preparing its financial statements under Israeli GAAP. For
comparative  purposes,  results in this report for 1998 have been  re-valued  in
NIS, using Israeli GAAP.  Israeli GAAP and U.S. GAAP differ in certain  material
respects,  which  are  set  forth  in  detail  in Note  33 of the  Notes  to the
Consolidated Financial Statements.

         Our Consolidated Financial Statements are presented in NIS, adjusted to
reflect  changes in the CPI through the latest balance sheet date. The financial
statements of certain of Elscint's  subsidiaries are prepared in local currency,
the functional currency of these  subsidiaries,  which are adjusted to the local
inflation rate in their country of resident and are then  translated into NIS at
the rate of exchange  prevailing  at the end of the  period.  (See Note 2 of the
Notes to the Consolidated Financial Statements.)

         Because Elscint's  revenues and expenses are each recorded in different
mixes of  currencies,  the  results of  operations  of Elscint  are  affected by
several interrelated  factors,  including the ratio between the value of the NIS
and other  currencies,  the rate of inflation  in Israel,  the rate of inflation
abroad and the timing and amount of the  devaluation  of the NIS as  compared to
the U.S. dollar.

         Financial  data  included in this  discussion  have been  derived  from
Elscint's  Consolidated  Financial  Statements and from NIS analyses prepared by
Elscint based on its based on accounting records and published statistical data,
and have been rounded to the nearest thousand. For convenience purposes, certain
selected  financial data presented herein for the fiscal year ended December 31,
2002, have been translated into U.S. dollars using the  representative  exchange
rate on December 31, 2002 of NIS 4.737 = $1.00.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

         The  following  discussion  should  be read  in  conjunction  with  the
consolidated  financial  statements of the Company included in Item 18 and notes
thereto.

         A "critical  accounting  policy",  as indicated by the SEC, is one that
(i) is important to the portrayal of an entity's financial condition and results
and (ii) requires management's most difficult,  subjective or complex judgments,
often as a result of the need to make estimates about the effect of matters that
are inherently  uncertain.  We believe that our critical accounting policies are
those described below. For detailed  information on the application of these and
other accounting policies,  see Note 2 to the consolidated  financial statements
includes in Item 18. As for the differences  between Israeli GAAP and U.S. GAAP,
see Note 33 to the financial statements included in Item 18.

         The preparation of our consolidated  financial statements in conformity
with Israeli GAAP,  requires us to make  estimates and judgments that affect the
reported  amounts of assets,  liabilities,  revenues and  expenses,  and related
disclosure  of  contingent  assets and  liabilities.  On an on-going  basis,  we
evaluate our  estimates,  including  those  related to impairment of real estate
assets  and  investments,  assessment  of  the  probable  potential  outcome  of
litigation  matters in which we are involved and other



                                      -39-
<PAGE>

contingent  liabilities,  allowance  for  doubtful  accounts,  determination  of
subsidiaries'  functional currency,  deferred taxes and capitalization of costs.
We base our estimates on historical  experience and on various other assumptions
that are believed to be reasonable under the circumstances, the results of which
form the basis for  making  judgments  about the  carrying  values of assets and
liabilities that are not readily  apparent from other sources.  In preparing the
financial  statements  and forming its estimates  and judgments  with respect to
certain amounts included therein,  management has utilized available information
including,  among other factors, the Company's past history,  industry standards
and  the  current  economic  environment,  while  giving  due  consideration  to
materiality.  It is  possible  that the  ultimate  outcome,  as  anticipated  by
management in formulating its estimates inherent in these financial  statements,
will not materialize.  However,  application of the critical accounting policies
described  below  involves the exercise of judgment and use of assumptions as to
future  uncertainties  and, as a result,  the actual  outcome  could differ from
these estimates.  In addition,  other companies may utilize different estimates,
which  may  have  impact  on the  comparability  of  the  Company's  results  of
operations to those of companies in similar businesses.

         The SEC recently issued Financial Reporting Release No. 60, "Cautionary
Advice  Regarding  Disclosure  About Critical  Accounting  Policies" ("FRR 60"),
suggesting  companies  provide  additional  disclosure  and  commentary on those
accounting  policies  considered  most critical.  FRR 60 considers an accounting
policy to be critical if it is important to our financial  condition and results
of operations,  and requires  significant  judgment and estimates on the part of
management  in its  application.  For a summary  of our  significant  accounting
policies,  including the critical  accounting  policies discussed below, see the
accompanying notes to the consolidated financial statements.

         We believe  the  following  critical  accounting  policies  reflect our
principal  significant  judgments and estimates  used in the  preparation of the
consolidated financial statements.

         IMPAIRMENT AND DEPRECIATION OF LONG-LIVED ASSETS

         The  Company  evaluates  the  need for an  impairment  loss on its real
estate  assets used in  operation  or under  construction,  when  indicators  of
impairment  are  present  and based on the  estimated  undiscounted  cash  flows
(before  interest and tax  charges)  expected to be generated by those assets in
comparison  and if they are not  sufficient to recover their  carrying  amounts.
Indicators we consider  important so as to trigger an impairment  review include
the following:  a significant negative industry or economic trend; a significant
under-performance  relative to  historical  or projected  operating  results;  a
significant  change in the manner in which an asset is used; and an accumulation
of costs  significantly in excess of the amount originally expected to construct
an asset.  Our cash flow estimates are based on historical  results  adjusted to
reflect our best estimate of future market and operating conditions.  If such an
asset  is  considered  to be  impaired,  an  impairment  loss is  recorded.  The
impairment  loss,  if any, is measured by comparing the amount that reflects the
fair  value of the asset at the time  impairment  is  evident,  to its  carrying
amount.  Estimates of fair value  represent the best estimate  based on industry
trends  with  reference  to  market  rates  and  transactions.  In the event the
projected forecasts regarding the future cash flow generated by those assets are
not met, we may have to record in the future an impairment  loss not  previously
recorded.

         Based on  management's  estimates of future cash flows,  our long-lived
assets were determined to be recoverable  except,  for an impairment loss of NIS
4.4 million,  which was recorded in 2002. In addition,  the Company has recorded
an impairment loss of the carrying value of investments in certain subsidiaries,
for the year ended December 31, 2002, which was attributed,  in the consolidated
financial  statements  to the assets value of each such a  subsidiary.  See also
"Impairment of Investments", below.

         The  recognition of an impaired  property and the potential  impairment
calculation  are subject to a  considerable  degree of judgment,  the results of
which,  when applied  under  different  principles  or different  conditions  or
assumptions, are likely to result in materially different amounts and could have
a material adverse impact on the financial statements.  The evaluation of future
cash flow  expected to be generated by each property is subject to a significant
uncertainty  in the  estimation  of future  income and  expenses  of the hotels'
and/or the commercial center's operations,  and the future capital expenditures.
In preparing  these  projections,  the Company must make a number of assumptions
concerning  occupancy  rates,  average room rate (in respect of hotels),  rental
fees rates (in respect of the commercial  and  entertainment  center),  rates of
growth of revenues,  market prospects,  operational efficiency of the management
company  and the scope of  maintenance  and  other  operational  expenses.  Such
estimates  are affected by economic  factors



                                      -40-
<PAGE>

such as visitors' trends per each site, general prospect of demand and supply of
hotel rooms in the city (in respect of hotels), competition in the site area and
macro-economic factors in each country.

         Depreciation  of real estate is based on the  estimated  useful life of
the  property  (50 years in respect of the  commercial  centers  and 67 years in
respect of the hotels) using the straight-line method.

         Maintenance  and repairs are charged to expenses as  incurred.  Capital
improvements   and  renovations  are  capitalized  and  depreciated   using  the
straight-line method over their estimated useful life.

         Under  different  assumptions  or  conditions,   the  asset  impairment
analysis may yield a different outcome,  which may alter the impairment analysis
on our assets,  as well as the gain or loss on the eventual  disposition  of the
asset.

         IMPAIRMENT OF INVESTMENTS

         The Company evaluates  permanent  impairment on individual  investments
(including,   in  subsidiaries)  in  its  portfolio,   when  an  investment  has
experienced a sustained  decline (not of a temporary nature) in fair value below
cost.  Management  considers several factors,  including a significant  negative
industry  or  economic  trend,  a  significant   under-performance  relative  to
historical or projected operating results,  the length of time during which such
investment has  experienced a decline,  achievement of business plan  objectives
and  milestones,  the  value of each  ownership  interest  in an  unconsolidated
company in relation to the carrying value, the financial condition and prospects
of the company as well as the  volatility  inherent in the external  markets for
these investments,  and other relevant factors. These evaluations are subjective
in nature.  Permanent  declines in value  result in a charge to net  income,  or
against  cumulative  foreign  currency  translation  adjustment  reserve  in the
shareholder equity as applicable reducing the carrying value of the investment.

         The  Company  holds  majority  interest in private  investee  companies
(without  a  quoted  market  value),  which  own and  operate  (each of them) an
entertainment  and commercial  center and/or a hotel whose value is difficult to
determine.

         In addition,  the company  holds also  minority  interests in high-tech
company (a development stage company),  which is privately held company (without
a market  for the  trade of  their  securities),  whose  value is  difficult  to
determine.

         The Company records an investment impairment charge when it believes an
investment  has  experienced  a decline in value that is not  temporary.  Future
adverse  changes in market  conditions or poor  operating  results of underlying
investments  could  result  in  losses  or  in  an  inability  to  generate  the
anticipated cash flow from holding the investee company and recover the carrying
value of the  investments  (which is not  reflected in an  investment's  current
carrying value), thereby possibly requiring an impairment charge in the future.

         In 2002, the Company  recorded a write-down of such  investments in the
amount of NIS 23.2 million ($4.9 million).

         For  additional  information  - see  notes  2W,  19C(8)  and 10A to the
financial statements including in item 18.

         As for the  differences  between  Israeli  and U.S.  GAAP in respect of
investment in subsidiaries-  fair value measurement - see subsection A14 to note
33 to the financial statements included in Item 18.



                                      -41-
<PAGE>


ALLOWANCE FOR DOUBTFUL ACCOUNTS, LITIGATION AND OTHER CONTINGENT LIABILITIES

         a. The Company and its subsidiaries  are currently  involved in various
litigation  disputes  in  substantial   amounts.  We  provide  a  provision  for
contingent obligations  (including those in respect of discontinued  operations)
when the obligations  are probable and the amounts may be estimated  reasonably.
We include in the financial statements provisions which in management's opinion,
based on, among other  factors,  legal  consultation  and past  experience,  are
deemed  adequate  to cover the costs and  resources  necessary  to  satisfy  the
potential  liabilities  under these claims.  As facts  concerning  contingencies
become known, we reassess our position and make  appropriate  adjustments to the
financial statements.

         In addition to the above, the Company and its subsidiaries are involved
in  litigation  matters,  the amount or  outcome  of which may not be  estimated
(e.g.,  class actions).  Because of the uncertainties  related to amounts and/or
ranges of losses in these remaining  litigation  matters,  neither the Company's
management nor its legal advisors are able to make a reasonable  estimate of the
liability  that could  result from an  unfavorable  outcome and  accordingly  no
provision provided for such claims. As additional information becomes available,
we will re-assess the potential  liability related to our pending litigation and
revise  our  estimates  accordingly.  Such  revisions  in our  estimates  of the
potential  liability  could  materially  impact our  results of  operations  and
financial position.

         For additional information regarding contingent liabilities,  see "Item
8 - Financial Information - Legal Proceedings".

         b. Following the sale of the Company's  operations in 1998, the Company
was  required  to assess  the  outcome  of  various  contingent  liabilities  in
connection with such sale. The outcome of such contingent liabilities may differ
materially from the assessment of management.  Management periodically evaluates
these assessments and makes appropriate  adjustments to the financial  statement
based thereon.

         c. The  Company  examines,  on an ongoing  basis,  the volume of credit
extended to its customers in the ordinary  course of business and,  accordingly,
records a provision  for  doubtful  accounts  based on those  factors  affecting
credit risks of certain  customers  based upon the judgment of  management.  Our
group companies  periodically evaluate the quality and value of loans granted by
them to various  third parties in the ordinary  course of business,  in light of
the  securities  provided  therefore,  the  term of such  loan  and  their  past
experience with such third parties.

         d. The  allocation  of the  proceeds  from  the  sale of the  Company's
operations in 1998 among Elscint and its  subsidiaries  is based on an estimated
fair  value  of  assets  (both  tangible  and  intangible)  sold  by each of the
companies;  on separate  negotiations held with each selling company; and on the
basis  of  the  provisions  stipulated  in the  respective  sale  agreements.  A
different method of allocation may cause Elscint and its subsidiaries additional
liabilities and/or expenses.  Elscint's  management  believes that the estimates
used as the  basis  for this  allocation  of  proceeds  are  adequate  under the
circumstances.

DETERMINATION OF FUNCTIONAL CURRENCY OF INVESTEE COMPANIES

         In preparing our consolidated financial statements,  we are required to
evaluate the functional  currency of certain  subsidiaries  operating outside of
Israel  (mainly in  Europe).  The  functional  currency is  determined  based on
management judgment and involves  consideration of all relevant economic factors
and circumstances affecting each subsidiary (e.g., the currency of the financial
environment that significantly  affects  management in determining,  inter alia,
services' prices, or the currency used by management for the purpose of decision
making).  Generally,  the currency in which each subsidiary transacts a majority
of its transactions,  including  purchases,  billings,  collections and payments
(i.e.,  currency in which  receivables  and payments  from current  activity are
denominated or in which they are held following  their  conversion),  as well as
financing,  the currency in which majority of costs  pertaining to the supply of
services are incurred (e.g. payroll,  maintenance and other  expenditures),  may
indicate the functional currency while the nature of the subsidiary's operations
must also be considered.  A significant



                                      -42-
<PAGE>

change in the financial environment,  or in the foregoing factors in whole or in
part,  may require  management to re-asses its  determination  of the functional
currency.

         Based on our  assessment  of the  foregoing  factors,  we consider  the
relevant  subsidiary's local currency to be the functional  currency for each of
our international subsidiaries.

         When any  subsidiary's  functional  currency  is deemed to be the local
currency,  then  any  gain or  loss  associated  with  the  translation  of that
subsidiary's  financial  statements,  for  consolidation  purposes,  is  charged
directly to a separate  item in the  shareholders'  equity,  namely " cumulative
foreign currency translation adjustments".  Exchange differences on net monetary
items included in the  subsidiary's  financial  statements which are denominated
in, or linked to,  currencies other than the functional  currency,  are recorded
directly to the statements of operations.  See also "Item 11 - Quantitative  and
Qualitative disclosure about market risks - Exchange rate exposure" and "Item 11
- Quantitative  and Qualitative  disclosure about market risks - Exposure to net
investment value of foreign entity."

         However,  in the event the  functional  currency  changes to a currency
other than the local currency,  the amount of the foreign  currency  translation
adjustment  and/or the net income could be materially  affected in each reported
year relevant to the change.

         For information on currencies  involved in our global  operations,  see
"Item 11 - Quantitative and Qualitative  disclosure about market risks - Table I
- foreign currency risks".

         ACCOUNTING FOR INCOME TAXES

         As part of preparing  our  consolidated  financial  statements,  we are
required to estimate our income taxes in each of the  jurisdictions  in which we
operate.  This  process  involves an  estimate  by us of our actual  current tax
exposure, together with assessing temporary differences resulting from differing
treatment of items, such as deferred revenue,  for tax and accounting  purposes.
These  differences  result in  deferred  tax  assets  and  liabilities  that are
included in our  consolidated  balance sheet. We must then assess the likelihood
that our deferred tax assets will be recovered  from future taxable  income.  To
the extent we believe that recovery is unlikely,  we must  establish a valuation
allowance.  The Company  records a valuation  allowance  to reduce  deferred tax
assets to the amount believed more likely than not to be realized.  In assessing
the need for the  valuation  allowance,  the Company  considers  future  taxable
income and ongoing  prudent and feasible tax planning  strategies.  In the event
the Company determines that it may not be able to realize all or part of its net
deferred tax assets,  an  adjustment to the deferred tax assets would be charged
as a tax expense in the period  throughout  which such  determination  was made.
Likewise,  should the  Company  determine  that it would be able to realize  its
deferred  tax  assets in the  future in excess of its net  recorded  amount,  an
adjustment to the deferred tax assets  valuation  allowance would be recorded as
tax benefit in the period throughout which such determination was made.

         CAPITALIZATION OF COSTS

         We capitalize direct  acquisition,  construction and development costs,
including initiation costs,  pre-development costs, finance costs in real terms,
property  taxes,  insurance,  and indirect  allocated  project  costs,  that are
associated  with the  acquisition,  development or  construction  of real estate
projects.   Costs  previously  capitalized  that  relate  to  (i)  an  abandoned
development  opportunity;  (ii) a project  that is not  reasonably  expected  to
materialize;  or (iii) a  project  the  expected  economic  benefit  of which is
doubtful,  are written off and charged to the  statement of  operations.  Should
development and construction  activities  decrease  substantially,  a portion of
financial   costs  and  project   expenses   may  no  longer  be  eligible   for
capitalization, and would be expensed.


OPERATING RESULTS

         The   following   table   presents  for  the  periods   indicated   the
relationships  of certain  statements  of  operation  items to net  revenues  of
Elscint:



                                      -43-
<PAGE>

<TABLE>
<CAPTION>
                                                                               YEAR ENDED DECEMBER 31,
                                                                               -----------------------
                                                                       2002            2001              2000
                                                                       ----            ----              ----
                                                                        %                %                 %
TOTAL REVENUES

<S>                                                                    <C>             <C>              <C>
Operating and managing hotels                                          99.3            93.3             84.1
Revenue from long term contracts                                        0.7             6.7             15.9
                                                                        ---             ---             ----
                                                                      100.0           100.0            100.0
COST OF REVENUES

Cost of Hotel operations                                               64.0            64.2             54.4
Cost of long term contracts                                             0.7             4.9             14.2
                                                                        ---             ---             ----
                                                                       64.7            69.1             68.6

GROSS PROFIT                                                           35.3            30.9             31.4

Hotel depreciation, amortization and operation expenses                29.5            21.1             18.0
Initial expenses, net                                                   0.8             2.7              1.4
General and administrative expenses                                    15.1            17.3             18.5
                                                                       ----            ----             ----
OPERATING LOSS                                                        (10.1)          (10.2)            (6.5)

Finance income (expenses), net                                          6.1            43.6            (16.0)
Other (expenses) income, net                                          (10.3)           (8.8)             2.0
                                                                      -----            ----            -----
(LOSS) INCOME BEFORE INCOME TAXES                                     (14.3)           24.6            (20.5)

Income taxes                                                           (2.5)            3.6              3.7
                                                                      -----            ----            -----
(LOSS) INCOME AFTER INCOME TAX                                        (11.8)           21.0            (24.2)

The  Company's share in net loss of affiliated companies                1.4             6.5              2.6
Minority interest in loss of a subsidiary company                       0.4             0.9                -
                                                                      -----            ----            -----
NET (LOSS) INCOME FROM CONTINUING OPERATION                           (12.8)           15.4            (26.8)
Net income from discontinuing operation                                42.7            22.7             60.7
                                                                       ----            ----             ----
NET INCOME                                                             29.9            38.1             33.9

</TABLE>

         FISCAL 2002 COMPARED TO FISCAL 2001

         Revenues  from our  hotel  activities  for  fiscal  2002 were NIS 210.6
million  (approximately  $44.5  million),  as compared to NIS 141.9  million for
fiscal 2001, an increase of NIS 68.7 million or 48.4%.

         The increase in revenues of the hotel division resulted  primarily from
(i)  commencement  of operation of the Sherlock  Holmes and Victoria  Park Plaza
hotels in London at the end of fiscal  2001,  and (ii)  increase in the exchange
rate of the Euro and the British Pound against the NIS in fiscal 2002.

         Our  expectation  at the  beginning  of 2002 that income from our hotel
business would increase during 2002 proved to be correct.

         Elscint  expects  income from its hotel  business to decrease in fiscal
2003,  mainly due to the  discontinuing  operations at the Bernard Shaw Hotel at
the  beginning  of fiscal 2003 as a result of leasing the  property,  and to the
closing of the Bucuresti Hotel in Romania for renovation. In addition, we expect
to record revenues from the operation of the entertainment and commercial center
during the second half of 2003.

         We  do  not  anticipate  to  generate  substantial  revenues  from  the
operations of EBM during 2003.

         Total gross profit for fiscal 2002 was NIS 75.0 million  (approximately
$15.8 million),  or 35.3% of total revenues, as compared with NIS 47 million, or
30.9% of total revenues, in fiscal 2001.



                                      -44-
<PAGE>

         Elscint recorded  depreciation,  amortization and operational  expenses
for its hotel division in fiscal 2002 of NIS 62.7 million  (approximately  $13.2
million),  as compared with NIS 32.2 million for fiscal 2001.  This increase was
mainly due to (i)  commencement of operation of the Sherlock Holmes and Victoria
Park Plaza hotels in London at the end of fiscal 2001,  and (ii) increase in the
exchange  rate of the Euro and the British Pound against the NIS in fiscal 2002.
The  operational  expenses  included  fixed expenses of each hotel (which do not
vary with hotel  revenue,  occupancy  rate or gross  profit),  management  fees,
insurance and professional fees and increasing hotel activities.

         General  and  administrative  expenses  in  fiscal  2002  were NIS 32.2
million  (approximately $6.8 million) (15.1% of revenue) as compared to NIS 26.3
million (17.3% of revenues) in fiscal 2001. The increase was attributable mainly
to dividend  payments  of NIS 3.4  million  (approximately  $0.7  million)  with
respect to  incentive  shares  which are held by  employees  and are  subject to
non-recourse  loans,  and which are  recorded as an expense in the  statement of
operation.

          These  general  and   administrative   expenses  included   executive,
administrative,  legal and accounting costs,  rental expenses,  depreciation and
professional fees.

         As a result of the foregoing factors, operating loss in fiscal 2002 was
NIS 21.7 million  (approximately $4.6 million), as compared to an operating loss
of NIS 15.5 million in fiscal 2001.

         Net finance  income in fiscal 2002 was NIS 13.1 million  (approximately
$2.8  million),  as compared to NIS 66.3  million in fiscal  2001.  This finance
income was  attributed  primarily  to gains  from  exchange  rates and  resulted
primarily  from the  increase  of 0.7%  (net of  inflation)  in the value of net
financial assets that are either  denominated in or linked to the U.S. dollar in
relation to the NIS, as  compared to an increase of 7.7% (net of  inflation)  in
the value of these assets in fiscal 2001.

         Net other expenses in fiscal 2002 were NIS 21.9 million  (approximately
$4.6 million) compared to NIS 13.4 million in fiscal 2001. Net other expenses in
2002 resulted  primarily from impairment of long lived assets and investments in
investee companies during fiscal 2002.

         As a result of the foregoing factors,  loss before taxes in fiscal 2002
was NIS 30.5  million  (approximately  $6.4  million),  as compared to an income
before taxes of NIS 37.5 million in fiscal 2001.

         Tax benefit for fiscal  2002 was NIS 5.3  million  (approximately  $1.1
million), as compared to income tax of NIS 5.5 million in fiscal 2001.

         Elscint's  share in net  loss of  affiliated  company  in  fiscal  2002
totaled  NIS 2.9  million  (approximately  $0.6  million as  compared to NIS 9.9
million in fiscal 2001.  The net loss of  affiliated  company in fiscal 2002 was
attributed  to a loss of Gamida for the three month  period  ended  December 31,
2002.

         As a result  of the  foregoing  factors,  Elscint  had a net loss  from
continuing  operations  in fiscal 2002 of NIS 27.2 million  (approximately  $5.7
million),  as  compared  to net income  from  continuing  operation  of NIS 23.4
million in fiscal 2001

         Net income  from  discontinued  operations  in fiscal 2002 was NIS 90.7
million  (approximately  $19.1  million),  as compared  with NIS 34.6 million in
fiscal  2001.  The  increase  in the net  income  from  discontinued  operations
(composed  primarily from the operation of the sub-assemblies  segment) resulted
primarily from the improvement in fiscal 2002 in our current operations and from
the gain from the sale of the  sub-assemblies  segment in the amount of NIS 37.8
million in fiscal 2002.

         As a result  of the  foregoing  factors,  Elscint  had a net  income in
fiscal 2002 of NIS 63.5 million  (approximately $13.4 million), as compared with
NIS 58.0 million in fiscal 2001.

         FISCAL 2001 COMPARED TO FISCAL 2000

          Revenues from hotel activities and long term contracts for fiscal 2001
were NIS 152.1  million,  compared  to NIS 128.5  million  for fiscal  2000,  an
increase of NIS 23.6 million or 18.4%.



                                      -45-
<PAGE>

         The  increase  in  the  income   resulted   primarily  from  the  hotel
activities,  mainly due to the  consolidation  of the Bucuresti  hotel's results
commencing in April 2001.

          Total gross profit for fiscal 2001 was NIS 47.0  million,  or 30.9% of
the total  revenues,  as compared with NIS 40.3  million,  or 31.4% of the total
revenues in fiscal 2000.

         Elscint recorded  depreciation,  amortization and operational  expenses
for its hotel division in fiscal 2001 of NIS 32.2 million,  as compared with NIS
23.1 million for fiscal 2000. The operational  expenses  included fixed expenses
of each hotel  (which do not vary with hotel  revenue,  occupancy  rate or gross
profit),  management fees,  insurance and professional fees and increasing hotel
activities.

         General  and  administrative  expenses  in  fiscal  2001  were NIS 26.3
million (17.3% of revenue),  as compared to NIS 23.7 million (18.5% of revenues)
in fiscal 2000.  The increase was  attributable  mainly to the  commencement  of
operations of EBM resulting in additional general and  administrative  expenses.
These general and administrative  expenses included  executive,  administrative,
legal and accounting costs, rental expenses, depreciation and professional fees.

         As a result of the foregoing factors, operating loss in fiscal 2001 was
NIS 15.5 million as compared to an  operating  loss of NIS 8.4 million in fiscal
2000.

         Net finance  income in fiscal 2001 was NIS 66.3  million as compared to
net finance  expenses of NIS 20.6 million in fiscal 2000.  The finance income in
fiscal 2001 was  attributed  primarily to gains from exchange rates and resulted
primarily  from the  increase  of 7.7%  (net of  inflation)  in the value of net
financial assets that are either  denominated in or linked to the U.S. dollar in
relation to the NIS, as compared to a decrease of 3% (net of  inflation)  in the
value of these assets in fiscal 2000.

         Net other expenses in fiscal 2001 totaled NIS 13.4 million, compared to
net  income of NIS 2.7  million  in fiscal  2000.  Net  other  expenses  in 2001
resulted primarily from Elscint's sale of its entire holdings in Gilbridge.

         As a result of the  foregoing  factors,  income  before income taxes in
fiscal 2001 was NIS 37.5  million,  as compared to a loss before income taxes of
NIS 26.3 million in fiscal 2000.

         Income taxes for fiscal 2001 were NIS 5.5  million,  as compared to NIS
4.7 million in fiscal 2000.

          Elscint's  share in the net loss of an  affiliated  company  in fiscal
2001  totaled NIS 9.9  million,  as compared to NIS 3.3 million in fiscal  2000.
This increase was  primarily due to a net loss from the  operations of Gilbridge
during the nine months period ended September 30, 2001.

         As a result of the  foregoing  factors,  Elscint  had a net income from
continuing  operations in fiscal 2001 of NIS 23.4 million,  as compared to a net
loss from continuing operations of NIS 34.4 million in fiscal 2000.

         Net income  from  discontinued  operations  in fiscal 2001 was NIS 34.6
million, as compared to NIS 77.9 million in fiscal 2000.

         This net income from  discontinued  operations  included  primarily net
operating  income of the  sub-assemblies  segment in fiscal 2001 and fiscal 2000
and the gain from the sale of Elscint's entire holding in ELGEMS in fiscal 2000.

         As a result of the foregoing factors,  Elscint had net income in fiscal
2001 of NIS 58.0 million, as compared to NIS 43.6 million in fiscal 2000.

LIQUIDITY AND CAPITAL RESOURCES

         LIQUIDITY

         Major  balance  sheet  items  as a  percentage  of total  assets  as at
December 31, 2002 and 2001 were as follows:



                                      -46-
<PAGE>

                                                             DECEMBER 31,
                                                      --------------------------
                                                         2002(%)        2001(%)
                                                      -------------  -----------

      Current assets.............................        12.0           20.0
      Current liabilities........................        26.2           21.5
      Long-term liabilities......................        26.1           25.4
      Shareholders' equity.......................        41.8           41.4


         Elscint met its  operational  and  liquidity  needs in fiscal 2002 from
operations, utilization of bank credit facilities and cash on hand.

         Cash and cash  equivalents  decreased to NIS 93 million  (approximately
$20 million) at December  31,  2002,  from NIS 294 million at December 31, 2001.
This decrease was due primarily to ongoing cash investments in the entertainment
and commercial  center at the Herzlia Marina,  investment in the construction of
hotels,  a dividend  distributed in October 2002 and general and  administrative
expenses.

         Fixed assets,  net increased to NIS 1,638 million  (approximately  $346
million) at December  31,  2002,  from NIS 1,360  million at December  31, 2001,
primarily due to the continuing  investment in the hotels under  construction in
Europe as well as ongoing development in the entertainment and commercial center
in the Herzlia Marina,  as well as an increase in exchange rates between foreign
currencies and the NIS.

         Assets related to discontinuing operations decreased to NIS 114 million
(approximately  $24  million)  at  December  31,  2002 from NIS 191  million  at
December 31, 2001.

         This decrease was  attributed  primarily to the  disposition  of assets
related to the sub-assemblies segment as a result of the sale of this segment in
December  2002,  offset in part by the balance due to Elscint  from the buyer of
this segment.

         Short-term  credit  increased  to NIS 532 million  (approximately  $112
million) at December  31, 2002,  from NIS 447 million at December 31, 2001,  and
long-term  debt  increased to NIS 628 million  (approximately  $133  million) at
December  31, 2002 from NIS 601 million at December  31,  2001.  This change was
attributed  primarily  to  loans  obtained  for  the  construction  work  at the
Riverbank  Hotel and due to devaluation of the NIS against  foreign  currencies,
offset in part by the repayment of loans.

         Liabilities  relating to  discontinued  operations has decreased to NIS
111  million  (approximately  $23  million)  at  December  31, 2002 from NIS 255
million at December 31, 2001,  primarily  due to the sale of the  sub-assemblies
segment in December  2002 and  reduction  of  provisions  previously  accrued in
respect of the sale in 1998 of Elscint's CT, MRI and NM assets.

         Net cash  provided by  operating  activities  in 2002  totaled NIS 28.4
million (approximately $6 million), compared to NIS 39.7 million in 2001.

         Net  cash  used in  investing  activities  totaled  NIS  178.9  million
(approximately  $38  million,  as compared to of NIS 53.4  million in 2001.  The
investing activities in fiscal 2002 were primarily the purchases of fixed assets
and other assets.

         Net cash used in  financing  activities  during  2002  totaled NIS 52.8
million  (approximately  $11  million),  as  compared  to net cash  provided  by
financing activities of NIS 14.9 million in 2001.

         We anticipate, based on management's internal forecasts and assumptions
relating to our  operations,  that our existing  cash and funds  generated  from
operations,  together with our existing financing agreements, will be sufficient
to meet  our  working  capital  and  capital  expenditure  requirements  for the
completion of our current projects under  construction and other investments for
the  foreseeable



                                      -47-
<PAGE>

future. In the event that our plans change,  our assumptions  change or prove to
be inaccurate,  business  conditions  change,  or if other capital resources and
projected cash flow otherwise  prove to be  insufficient  to fund our operations
(due to unanticipated  expenses or other unforeseen  events), we may be required
to seek additional financing sooner than currently anticipated.

         DERIVATIVE INSTRUMENTS

         For information  about  financial  instruments  used,  profile of debt,
currencies,  interest rate structure, and the use of financial instruments,  see
"Item 11 - Quantitative and Qualitative Disclosure about Market Risk".

LOANS

         Set forth below is  information  with  respect to loans taken by us, by
our subsidiaries and by our jointly controlled  companies.  The loans granted to
our jointly controlled companies are presented in the table at their full value:

<TABLE>
<CAPTION>
                      Amount of Loan and
                      Amount Outstanding
 Nature of Facility     as of 12/31/02        Lending Bank       Interest on Loan    Security for Loan    Other Information
 ------------------   -------------------     ------------       ----------------    -----------------    -----------------

<S>                   <C>                     <C>                <C>                 <C>                       <C>
 General Facilities   3 Credit facilities     Bank Hapoalim,     With respect to     Pledge on            o   As long as any of the
 to the Company       in the aggregate        Israel             the Loan I(A)       security deposit         facilities are
                      total  of                                  ($55 million) -     of $55 million           outstanding, the
                      approximately $110                         0.7% more than      subordinated             ratio between equity
                      million                                    rate of interest    security interest        and adjusted balance
                                                                 accruing on         in  certain assets       sheet has to be not
                                                                 pledged security    acquired using the       less than 25%
                                                                 deposit; and Loan   facility
                                                                 I(B) ($9.7                               o   Bank agreed to
                      Amount outstanding -                       million) - LIBOR                             provide an additional
                                                                 + 2.5%              Various pledges          long term facility of
                      Loan I in U.S. dollar -                                        (first and second        $30 million, secured
                      $64.7 million comprised                    With respect to     ranking) on shares       by a $20 million
                      of (A) $55 million;                        Loan II -           of subsidiary            collateral deposit
                      and (B) $9.7 million                       LIBOR 2.5%          companies
                                                                                     (Africana,
                      Loan II in Euro -                          With respect to     Grandis, Albert,
                      35.0 million                               Loan III -          Euston)
                                                                 LIBOR 2.5%

                      Loan III in  GB
                      Pound 10.2 million



                                      -48-
<PAGE>

                      Amount of Loan and
                      Amount Outstanding
 Nature of Facility     as of 12/31/02        Lending Bank       Interest on Loan    Security for Loan        Other Information
 ------------------   -------------------     ------------       ----------------    -----------------        -----------------

Victoria and                                                                         o    Mortgage on     o   15% of principal to
Utrecht Park Plaza                                                                        both hotels         be paid during first
Hotels (The           Euro 49.9 million       Depfa Bank         4.9% - first five        and another         five years
Netherlands)                                                     years                    hotel in
                      Amount outstanding                                                  Eindhoven       o   20% of principal to
                                                                 Euro Swap + 1.2%         (not owned by       be paid during next
                      Euro 44.4 million                          - next five years        Elscint)            five years

                                                                                    o     First           o   Balance to be paid at
                                                                                          priority            end of term
                                                                                          security on
                                                                                          moveable        o   Elscint has no
                                                                                          property,           interests in the
                                                                                          goods,              Eindhoven hotel
                                                                                          present and         included in the
                                                                                          future rights       refinancing loan.  In
                                                                                          under lease,        as much as all
                                                                                          FF&E and            borrowers have joint
                                                                                          insurance           and severally
                                                                                          proceeds            liability. Elscint
                                                                                                              has a material
                                                                                    o     First ranking       indemnity arrangement
                                                                                          pledge on           with the owner of the
                                                                                          shares of           hotel in Eindhoven
                                                                                          subsidiary          with respect to
                                                                                          that owns the       liabilities under the
                                                                                          rights to the       loan, which pertain
                                                                                          land                to the Eindhoven
                                                                                                              hotel

Euston Road,                                                                        o     Mortgage on
London                                                                                    hotel and
                      GB Pound 28 million     Bank Hapoalim      LIBOR + 1.25%            related assets  o   Half of loan payable
                      Amount outstanding -                                                                    in 20 equal
                      GB Pound                                                      o     Third party         installments, with
                      24.15 million                                                       guarantee of GB     balance payable 10
                                                                                          Pound 5 million     years after closing
                                                                                          (the third          of loan
                                                                                          party is
                                                                                          indemnified     o   GB Pound 5 million may
                                                                                          by                  not be repaid until
                                                                                          Europe-Israel       certain conditions
                                                                                          for GB Pound        are met, and can be
                                                                                          2.5 million)        used only to repay
                                                                                                              shareholders' loans
                                                                                    o     Europe-Israel
                                                                                          and a Third
                                                                                          Party
                                                                                          guarantee
                                                                                          (severely and
                                                                                          jointly) of GB
                                                                                          Pound 2.25
                                                                                          million
                                                                                      o   First ranking
                                                                                          pledge on
                                                                                          shares of
                                                                                          subsidiary
                                                                                          that owns the
                                                                                          rights to the
                                                                                          land



                                      -49-
<PAGE>
                      Amount of Loan and
                      Amount Outstanding
 Nature of Facility     as of 12/31/02        Lending Bank       Interest on Loan    Security for Loan        Other Information
 ------------------   -------------------     ------------       ----------------    -----------------        -----------------


Sandton Park Plaza    Loan:                   Nedcor Investment                      o    $500,000         o  Payments to commence
                                                                                          deposit to          on 10/1/03; full
                      Rand 20 million                            10/02 - 9/03 - 7%        guarantee           balance payable on
                      (approximately                                                      payment of          10/1/2013
                      $2.3  million)                             10/03 and on - 1%        loan
                                                                 below prime
                      Amount outstanding                         overdraft rate      o    Mortgage on
                      - Rand 19.2 million                        charged by bank          hotel and
                      (approximately $2.2                                                 liens on
                      million)                                                            other assets

                                                                                    o     Rand 5 million
                                                                                          bond

Victoria Park Plaza   Credit Line:            Bank Leumi U.K.    LIBOR + 2%               GB Pound 250,000
Hotel, London                                                                             guarantee by each
                      Line of credit of                                                   of Europe-Israel    Short term facility
                      up to GB Pound 500,000                                              and a third
                                                                                          party

                      Amount outstanding

                      - GB Pound 492,000

                      Credit Facility -                                             o     Fixed and        o  One-half of
                                                                                          floating            refinancing loan
                      GB Pound 39.9 millions  Bank Hapoalim      LIBOR + 1.4%             liens on            repayable in 20
                      Amount outstanding -                                                hotel and           semi-annual
                      GB Pound 39.9 million                                               related             installments
                                                                                          assets and          commencing six months
                                                                                          rights              following first
                                                                                                              anniversary of
                                                                                    o     First ranking       opening of hotel;
                                                                                          pledge on           balance repayable in
                                                                                          shares of           one payment 10 years
                                                                                          subsidiaries        after opening of hotel
                                                                                          that own the
                                                                                          rights to the    o  Shareholders agreed to
                                                                                          lands               maintain an equity
                                                                                                              investment of at
                                                                                    o     guarantees by       least GB Pound
                                                                                          each of a           17.9 million
                                                                                          third party
                                                                                          and Elscint
                                                                                          for the
                                                                                          higher of
                                                                                          2.5% of total
                                                                                          costs of
                                                                                          project and
                                                                                          GB Pound
                                                                                          1.25 million

                                      -50-
<PAGE>
                      Amount of Loan and
                      Amount Outstanding
 Nature of Facility     as of 12/31/02        Lending Bank       Interest on Loan    Security for Loan    Other Information
 ------------------   -------------------     ------------       ----------------    -----------------    -----------------

Bucuresti Hotel       Two loans, each for     Bank Leumi         First loan -        First loan -         The Bank has restricted
                      $14.0 million                              LIBOR + 0.7%        pledge on a          its right to realize the
                                                                                    security deposit      Elscint guarantee, by
                                                                 Second loan -       of $14 million       linking it to the
                                                                 LIBOR + 1.95%                            realization of the pledge
                      Amount outstanding                                             Second loan:         over the Bucuresti shares
                      - $28 million                                                                       owned by Domino within 6
                                                                                    o     Lien on         months (except for
                                                                                          Domino shares   certain instances
                                                                                                          stipulated in the loan

   o     Pledge of       agreement).
                                                                                          Domino's
                                                                                          assets

                                                                                    o     Other liens
                                                                                          and pledges     Short term credit

                                                                                    o     Undertaking
                                                                                          to maintain
                                                                                          existing
                                                                                          ownership
                                                                                          structure of
                                                                                          hotel

                                                                                    o     Unlimited
                                                                                          guarantee by
                                                                                          Elscint

Riverbank Park        Credit  facility -      Bank Hapoalim      LIBOR + 1.5%        o    Liens on all    Short term credit
Plaza Project,        GB Pound 17.7 million                                               assets,
London                                                                                    including
                                                                                          land and
                                                                                          goodwill of
                      Amount outstanding                                                  hotel owning
                      - GB Pound 17.7 million                                             subsidiary

                                                                                   o      First ranking
                                                                                          pledge on
                                                                                         shares of
                                                                                         subsidiary
                                                                                         that owns the
                                                                                         rights to the
                                                                                         land

Sherlock Holmes       GB Pound 14.2 million   Bank Hapoalim      LIBOR + 1.4%        o    Fixed and       o   One-half to be repaid
Hotel, London                                                                             floating lien       in 19 semi-annual
                                                                                          on rights to        installments
                                                                                          hotel's
                      Amount outstanding -                                                assets,         o   Balance to be repaid
                      GB Pound 13.8 million                                               including           10 years after first
                                                                                          goodwill            draw down on loan

                                                                                    o     First ranking
                                                                                          pledge on
                                                                                          shares of
                                                                                          subsidiary
                                                                                          that owns the
                                                                                          rights to the
                                                                                          land
</TABLE>


                                      -51-
<PAGE>

TREND INFORMATION

         HOTEL BUSINESS

         Our hotel  business is affected by the trends in each of the geographic
areas in which we operate. The Western European hotel industry is generally seen
to be recovering  after the slower  period during 1998 and 1999,  and the demand
fallouts which were suffered by most European gateway cities  (including  London
and  Amsterdam)  with the  highest  exposure to slump in United  States  demand,
particularly  at the top-end of the market,  following the outbreak of "foot and
mouth"  disease and the subsequent  September 11, 2001 terrorist  attacks in New
York.  These  events  served to push down hotel room  yields by up to 30% in the
fourth quarter of 2001.  This trend has continued  during 2002 as revival in the
United States  economy proved slower than  anticipated,  and growth in operating
profits remains  uncertain for the foreseeable  future.  However,  in the medium
term gateway  cities are liable to show the strongest  growth over the next five
years,  with an increase in business  demand  preceding the leisure market which
may lag behind this  recovery  as the threat of  terrorist  reprisals  persists.
European  markets with the highest  proportion  of domestic  and  intra-regional
demand, which are less reliant on US and international  traffic and strengthened
by economic  convergence  following the launch of the  Euro-currency  in January
2002,  will fare best in the short  term.

         In the Eastern  European  market,  significant  supply  increases,  for
example in  Budapest  and  Warsaw,  are a key factor for  falling  demand in the
region,  although the pending  acceptance of Hungary as a member of the European
Union is likely to exert a positive  influence  on the  economy of that  country
which may  generate an increase in business  and tourist  traffic.  However room
rates in Hungary are expected to remain lower than in Western European countries
in the short to mid term.

         The  political  and  economic  situation  in South  Africa is liable to
remain   unstable  for  the   foreseeable   future,   while  the  prospects  for
stabilization in Romania remain unclear.

         ENTERTAINMENT AND COMMERCIAL CENTER

         In 1999, an Israeli court determined that the zoning plan applicable to
the Herzlia Marina project permits the construction of resort units only and not
of  residential  units.  This decision is not final and an appeal by the various
developers is still pending before the Supreme Court in Israel. While this issue
does not directly affect our entertainment and commercial  center, any delays in
the general  development  of the project caused by the resolution of this matter
may affect the flow of consumer  traffic to the area.  However,  we believe that
the  attractiveness of the location and the variety of entertainment  facilities
which will be offered at our  entertainment  and commercial  center will attract
consumers, an assumption which is supported by current consumer activities which
show generous patronage of the existing  facilities  (principally  restaurants),
particularly on weekends and public holidays,  notwithstanding  that the general
development of the project is stalled at this time.

         INVESTMENTS IN BIO-TECHNOLOGY COMPANIES

         The  bio-technology  field,  although affected to some extent by global
pressure on the investment  market,  is much more resilient than the traditional
high  tech  industry,  and is less  likely  to be  directly  affected  by recent
upheavals  in  that  industry.  Nevertheless,  during  2002  EBM  determined  to
temporarily  postpone all additional  investment in bio technology companies due
to the slowdown in and other  conditions  of the Israeli  economy and  projected
difficulties in raising financing for such companies.

IMPACT OF  DEVALUATION  ON  RESULTS OF  OPERATIONS  AND ON  MONETARY  ASSETS AND
LIABILITIES

         The  following  table sets forth,  for the periods  indicated,  certain
information  with  respect  to the  rate of  inflation  in  Israel,  the rate of
devaluation of the NIS in relation to the U.S.  dollar and the rate of inflation
in Israel adjusted for the NIS-dollar devaluation:


                                      -52-
<PAGE>
<TABLE>
<CAPTION>
                                                                                                       ANNUAL
                                                                                                       DEVALUATION
                       ISRAELI CONSUMER                        CLOSING EXCHANGE    ANNUAL              ADJUSTED FOR
YEAR ENDED             PRICE INDEX         ISRAELI INFLATION   RATE OF THE         DEVALUATION RATE    ANNUAL INFLATION
DECEMBER 31,           (UNITS) (1)         RATE (%) (2)        DOLLAR (3)          (%) (4)             (%) (5)
------------------     ------------------  -----------------   -----------------   ----------------    ----------------
<S>                           <C>                 <C>                <C>                   <C>                  <C>
        1998                  166.3               8.6            NIS 4.16                  17.6                 8.3
        1999                  168.5               1.3            NIS 4.153                 (0.2)               (1.5)
        2000                  168.5               0              NIS 4.041                 (2.7)               (2.7)
        2001                  170.9               1.4            NIS 4.416                  9.2                 7.7
        2002                  182.01              6.5            NIS 4.737                  7.2                 0.65

</TABLE>
(1)  For purposes of this table,  the CPI figures use 1993 as base equal to 100.
     These  figures  are based on  reports  of the  Israeli  Central  Statistics
     Bureau.
(2)  Annual  inflation  is the  percentage  change in the CPI in Israel  between
     December of the year indicated and December of the preceding year.
(3)  Closing  exchange  rate is the  rate of  exchange  between  the NIS and the
     dollar at  December  31 of the year  indicated,  as reported by the Bank of
     Israel.
(4)  Annual devaluation is the percentage increase in the value of the dollar in
     relation to the NIS during the year indicated.
(5)  The percentage of the annual  devaluation  adjusted for annual inflation is
     obtained by dividing the percentage of the annual  devaluation  rate plus 1
     by the percentage of the annual Israeli inflation rate plus 1, minus 1. For
     information about inflation rates and exchange rates of foreign  currencies
     of autonomous units, see Note 2 of the Notes to the Consolidated  Financial
     Statements.

         RECENTLY ISSUED ACCOUNTING STANDARDS

         (For other  standards  issued up to the date of approval of the FS, see
FS Financial Statements, see Financial Statements included in Item 18 below)

         On April 30, 2003, the FASB issued FASB Statement No. 149, Amendment of
Statement 133 on Derivative  Instruments  and Hedging  Activities,  which amends
FASB  Statement  No. 133,  Accounting  for  Derivative  Instruments  and Hedging
Activities,  to address (1) decisions reached by the Derivatives  Implementation
Group,  (2)  developments  in  other  Board  projects  that  address   financial
instruments,  and (3)  implementation  issues  related  to the  definition  of a
derivative.  Statement 149 has multiple  effective date provisions  depending on
the  nature  of the  amendment  to  Statement  133.  The  Company  is  currently
evaluating the impact of adopting Statement 149 on its financial statements.

         On May 15, 2003, the FASB issued FASB Statement No. 150, Accounting for
Certain  Financial  Instruments  with  Characteristics  of both  Liabilities and
Equity.  This Statement  establishes  standards for how an issuer classifies and
measures certain financial  instruments with characteristics of both liabilities
and equity.  It requires that an issuer classify a financial  instrument that is
within its scope as a  liability  (or an asset in some  circumstances).  Many of
those  instruments  were  previously  classified  as equity.  This  Statement is
effective for financial instruments entered into or modified after May 31, 2003,
and  otherwise  is  effective  at the  beginning  of the  first  interim  period
beginning  after June 15,  2003,  except for  mandatorily  redeemable  financial
instruments  of nonpublic  entities.  It is to be  implemented  by reporting the
cumulative  effect  of  a  change  in  an  accounting  principle  for  financial
instruments created before the issuance date of the Statement and still existing
at  the  beginning  of  the  interim  period  of  adoption.  Restatement  is not
permitted. For nonpublic entities,  mandatorily redeemable financial instruments
are subject to the  provisions  of this  Statement  for the first fiscal  period
beginning  after  December 15, 2003.  The Company is  currently  evaluating  the
impact of adopting Statement 150 on its financial statements.



           ITEM 6. -- DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

DIRECTORS AND SENIOR MANAGEMENT

                  As of April 30, 2003,  Elscint's directors and senior officers
were:

       NAME                    AGE               POSITION AT ELSCINT
       ----                    ---               -------------------

Abraham (Rami) Goren (2)       43        Executive Chairman of the Board
Rachel Lavine                  37        Director and President
Shimon Yitzhaki                47        Director
Joel Schwartz                  43        Director
Moshe Lion(1)(2)               42        Director
Benny Gal(1)(2)                59        Director
Shlomo Ben Eliyahu             48        Director
Shmuel Peretz(1)               63        Director
Marc Lavine (3)                49        General Counsel and Corporate Secretary
Uri Levin (1)(3)               37        Chief Financial Officer

(1) Member of the Audit Committee
(2) Member of the Donation Committee
(3) Member of the Disclosure Committee

         ABRAHAM  (RAMI) GOREN was appointed as Executive  Chairman of our board
of directors as of July 1, 1999.  Formerly,  Mr. Goren had been a partner in the
law firm of Prof.  Joseph  Gross,  Hodak,  Greenberg & Co. (now known as the law
firm of Gross, Kleinhendler,  Hodak, Halevy, Greenberg & Co.), a leading Israeli
securities and corporate law firm Prior  thereto,  Mr. Goren was an associate in
the law firm of Weil,  Gotshal & Manges in New York  City  from  September  1989
until August 1992. Mr. Goren

                                      -53-
<PAGE>

also  serves as the  Executive  Chairman  of the board of  directors  of Nessuah
Zannex Ltd., a full service  investment house listed on the TASE. Mr. Goren also
serves as a director of various  private  companies  in Israel and  abroad.  Mr.
Goren  received his LL.B.  degree from Bar Ilan  University in 1986 and an LL.M.
degree from New York  University in 1989.  Mr. Goren was admitted to the Israeli
Bar in 1987 and to the New York State Bar in 1990.

         RACHEL  LAVINE  was  appointed  President  and a member of our board of
directors in May 1999.  Since March 1998,  she has also served as Vice President
of  Europe-Israel,  and from 1994 to 1998 Ms. Lavine  served as Chief  Financial
Officer of Control  Centers.  Ms.  Lavine  holds a  Bachelor  of Arts  degree in
Accounting  from the  College  for  Management  in Tel Aviv,  and is a certified
public  accountant.  Ms. Lavine is married to Marc Lavine, the Company's General
Counsel and Corporate Secretary.

         SHIMON YITZHAKI was appointed a member of our board of directors in May
1999. In May 1999 he was also appointed  President of Elbit Medical Imaging Ltd.
("EMI").  Since March 1998,  Mr.  Yitzhaki  has served as the Vice  President of
Europe-Israel, and, since the mid- 1980's, as Vice President of Control Centers.
Mr.  Yitzhaki  holds a  Bachelor  of Arts  degree  in  Accounting  from Bar Ilan
University, and is a certified public accountant.

         JOEL  SCHWARTZ  was  appointed  a member of our board of  directors  in
August 1999. Mr. Schwartz is the senior partner in the law firm of J. Schwartz &
Co. in Tel Aviv, Israel specializing in commercial law, principally in the areas
of aviation and real estate.  Mr.  Schwartz holds an LL.B.  degree from Tel Aviv
University.

         MOSHE LION was  appointed a member of our board of directors in October
2000. Mr. Lion is a senior partner of an accounting  firm in Israel and chairman
of Israel  Railways  and of the  Provident  Fund  Investment  Committee  of Bank
Tefahot,  an Israeli bank. From December 1997 to July 1999 Mr. Lion was Director
General of the Israeli Prime  Minister's  Office and an economic  advisor to the
Israeli Prime Minister. From January 1997 to November 1997 he served as the Head
of the Bureau of the Israeli Prime Minister's  Office and as an economic advisor
to the  Israeli  Prime  Minister.  Mr.  Lion holds a Bachelor  of Arts degree in
accounting  and  economics  and a Master's  Degree in Law (LL.M.)  from Bar Ilan
University (possible in Israel for accountants).

         BENNY GAL was  appointed a member of our board of  directors in October
2000.  Mr.  Gal is the owner and  manager of Gal-BSD  Advertising  Ltd.,  a firm
engaged in the advertising  field.  Mr. Gal holds a Business  Management  degree
from the College for  Management  in Tel Aviv and is a graduate of the Marketing
and Advertising School of the Advertisers Association in Israel. Mr. Gal is also
a graduate of the Corporation  Senior Directors  training course of the Business
Management Faculty in Tel-Aviv University.

         SHLOMO BEN ELIYAHU was  appointed a member of our board of directors in
March  2002.  Mr. Ben  Eliyahu  serves as  general  director  of the  Settlement
Division of the World Zionist  Organization as well as the chairman of the board
of directors of the Company for Development of East Jerusalem.  During 2001, Mr.
Ben Eliyahu  served as a director of the Israeli Land Authority and from 1999 to
2001,  Mr. Ben  Eliyahu  was the  Director  General of the  Israeli  Ministry of
Housing and Construction. Prior thereto, Mr. Ben Eliyahu served as a director of
the Israeli Ports and Railways Authority and as a publicly nominated director of
a  construction  company.  Mr. Ben Eliyahu was also a member of the Israeli Land
Council,  the  Governmental  Directors  General  Council and the chairman of the
Israeli Contractors Council. Mr. Ben Eliyahu holds an LL.B. degree from Bar Ilan
University.

         SHMUEL PERETZ was appointed a member of our board of directors in March
2003.  Mr.  Peretz has been  serving  since 1997 as the  president of the Israel
Aircraft Industries European division.  Between 1991 and 1996, Mr. Peretz served
as vice president (finance) of the Israel Aircraft Industries. Between the years
1980-2002  Mr.  Peretz  served as a director of Elta Ltd.,  Magal Ltd.,  Medisel
Technologies Inc.,  SpaceCom Ltd., and Belgium Advanced  Technologies (a Belgium
company).



                                      -54-
<PAGE>

degree  in  Economics  and  Political  Science  from the  Hebrew  University  in
Jerusalem,  as well as a Masters of Business  Administration degree from the New
York Institution of Technology.

         MARC  LAVINE  was  appointed  as  our  General  Counsel  and  Corporate
Secretary  in August  1999.  Mr.  Lavine  also  serves as  General  Counsel  and
Corporate Secretary for EMI and Europe-Israel.  Prior thereto,  Mr. Lavine was a
partner in the law firms of Miron, Bension & Prywes (Tel-Aviv) from 1977 to 1997
and Raved Magriso Benkel & Caspi  (Tel-Aviv)  from 1997 to 1998. Mr. Lavine is a
graduate of the University of Zimbabwe  (B.L.,  1974).  Mr. Lavine is married to
Rachel Lavine, the Company's President.

         URI LEVIN was appointed Chief Financial  Officer  effective April 2000.
Prior thereto he was the Comptroller of  Europe-Israel  from 1998 to March 2000.
From 1996 to 1998, Mr. Levin was Assistant  Chief  Financial  Officer of Control
Centers.  Prior thereto, Mr. Levin was with Almagor & Co. (Tel-Aviv),  Certified
Public Accountants. Mr. Levin holds a Bachelor of Arts degree in accounting from
the College for Management in Tel Aviv and is a certified public accountant.

         There are no arrangements made with directors and senior management for
their appointment.

COMPENSATION OF DIRECTORS AND MANAGEMENT

         The cost of compensation  (including an estimated  provision for annual
bonus which is subject to the approval of the  Company's  board of directors and
shareholders) of Mr. Abraham (Rami) Goren in his capacity as Executive  Chairman
of the Board of Elscint for the year ended  December 31, 2002 was  approximately
NIS 1.745 million (approximately $368,000). In addition, Mr. Goren received from
the  Company a dividend  payment  (under the  company's  employee  and  officers
incentive  plan) in the  amount  of  approximately  NIS  478,000  (approximately
$101,000).

         The cost of compensation (including pension, retirement benefits and an
estimated  provision  for annual  bonus which is subject to the  approval of the
Company's board of directors and its  shareholders)  of Ms. Rachel Lavine in her
capacity  as  President  of Elscint  for the year ended  December  31,  2002 was
approximately  NIS 1.832  million  (approximately  $387,000).  In addition,  Ms.
Lavine  received  from the  Company a  dividend  payment  (under  the  Company's
employee  and  officers  incentives  plan) in the  amount of  approximately  NIS
531,000 (approximately $112,000).

         The aggregate compensation  (including pension and retirement benefits)
paid to or accrued on behalf of the  remaining  officers  and  directors  of the
Company for the year ended December 31, 2002, as a group, was  approximately NIS
951,000 (approximately $201,000). In addition, the officers and directors of the
Company other than Mr. Goren and Ms. Lavine received from the Company a dividend
payment  (under the  Company's  employee  and officers  incentives  plan) in the
amount of approximately NIS 929,000 (approximately $196,000).

         The  aggregate  amount  accrued by the  Company to provide  pension and
retirement  benefits  only  for  the  directors,  officers  and  members  of the
administrative, supervisory and management bodies of Elscint as a group for 2002
was approximately NIS 940,000 (approximately $199,000).

BOARD PRACTICES

         APPOINTMENT OF DIRECTORS. Our current directors (other than Mr. Peretz,
who was elected by our board of  directors  in March 2003 and  Messrs.  Lion and
Gal,  who were  appointed  as  external  directors  on  October 2, 2000 and will
continue  to  serve  as  external  directors  until  the  termination  of  their
three-year  term) were appointed by our  shareholders at their annual meeting on
December  31, 2002,  and will hold office  until the next annual  meeting of our
shareholders.  The directors do not have any service  contracts with the Company
or any of its  subsidiaries  that provide for benefits upon termination of their
office.

         AUDIT COMMITTEE.  The members of our audit committee are Messrs.  Lion,
Gal and Peretz.  The audit  committee  operates in accordance  with its charter,
which sets forth the requirements,  obligations and duties of the members of the
audit  committee.  All of the  members of the audit  committee  meet the current




                                      -55-
<PAGE>

independence  requirements under Israeli law and the rules of the New York Stock
Exchange (the "NYSE").

EMPLOYEES

         As  of  April  30,  2003,   Elscint  and  its   subsidiaries   employed
approximately 770 persons, of whom approximately 46 were employed in Israel. The
decrease  in the  number of  employees  in Israel is a result of the sale by the
Company of its manufacturing and sub-assembly facility in Ma'alot as of December
31, 2002,  as well as a decrease in the number of the employees of the Bucuresti
hotel due to its renovation.

         To date,  Elscint has enjoyed  good  employee  relations  and has never
experienced labor disputes, strikes or work stoppages.

         EMPLOYMENT CONDITIONS

         In Israel
         ---------

         The  liability  of  Elscint  and its  subsidiaries  to  employees  upon
termination  includes primarily severance pay,  termination pay and compensation
for unutilized vacation days.

         Although not legally required,  Elscint generally makes  contributions,
on behalf of most of its employees, to a fund known as "Managers' Insurance".

          Managers'  Insurance  fund  provides a  combination  of savings  plan,
insurance and severance payment benefits to the employee,  giving the employee a
lump sum payment  and/or  pension  payments  upon  retirement  and  securing the
severance payment, if legally entitled, upon termination of employment.  Elscint
determines  whether an employee is entitled to participate in the plan, and each
employee  who agrees to  participate  contributes  an amount  equal to 5% of his
salary, with Elscint contributing between 13.3% and 15.8% of his salary.

         The funds  contributed  by Elscint to the  insurance  companies and the
pension  fund are  transferred  under the  employee's  name.

         Israeli law generally requires  severance payment,  which may be funded
by the  Managers'  Insurance,  to be paid  upon  the  retirement  or death of an
employee or termination of employment without cause (as defined in the law). The
payments amount to one-month salary for each employment year.

         Furthermore,  Israeli  employees  and  employers  are  required  to pay
predetermined  sums to the National  Insurance  Institute (similar to the United
States  Social  Security  Administration),  which amounts  include  payments for
national health insurance.  The payments to the National Insurance Institute are
equal to 16.25% of the  employee's  wages,  of which  the  employee  contributes
10.32% and the employer contributes 5.93%.

         Israeli  employment laws are applicable to the employees of Elscint and
of its  Israeli  subsidiaries.  These  laws  concern  primarily  the  length  of
working-day,  minimum  daily  wages  for  professional  workers,  insurance  for
work-related  accidents,  procedures for dismissing employees,  determination of
severance payment and other conditions of employment.

         Abroad
         ------

         The  Company's  liability for severance pay in respect of its employees
abroad,  pursuant to the laws of the countries in which these  companies  reside
and the labor agreements in effect, is ordinarily covered by current payments to
government agencies with respect to the voluntary or involuntary  termination of
the employees employment,  as well as by regular payments to insurance companies
for pension benefits.



                                      -56-
<PAGE>


SHARE OWNERSHIP

         EMPLOYEES AND OFFICERS INCENTIVE PLAN

         At  their  annual   meeting   held  on  October  18,  2001,   Elscint's
shareholders  approved the issuance of 850,000 ordinary shares to, among others,
employees  and  officers of Elscint and its  subsidiaries  and to  employees  of
Europe-Israel  who  provide  services  to the  Company,  pursuant  to  Elscint's
employees and officers incentive plan.

         As of December  2002,  802,500  shares (out of which 68,500 shares were
subsequently  returned  to the plan) had been issued at a price per share of NIS
15.65 (the share  price on the last  trading  date prior to the  issuance).  The
rights of the recipients to receive the shares vest over periods of two or three
years  following  the  issuance  (i.e.,  50% or 33% of the  shares  will  become
available for purchase at the end of each year).  Of these shares,  440,000 were
issued to Elscint's  directors and officers  (37,500 of which were  subsequently
returned to the plan).

         Elscint  granted the recipients  loans for the purpose of financing the
purchase of the shares that were offered to them,  in amounts  equal to the full
purchase price of the shares. The loans were granted for a period of five years,
bearing  interest at an annual rate of 6%. Value added tax payable in respect of
the interest will be paid by the Company. In addition,  the Company will pay any
taxes, if applicable and when due from the recipients as a result of the payment
of interest.  The principal of the loan and the interest  thereon will be repaid
upon the expiration of five years after the grant of the loan.

         The shares were issued to a trustee for the benefit of the  recipients,
and  will  serve  as sole  collateral  for  the  repayment  of the  loan by each
recipient.  Notwithstanding the foregoing,  each recipient of shares is entitled
to instruct the trustee to transfer or sell any vested shares,  provided that in
such event the  recipient  shall  deposit a percentage  of the loan (capital and
interest)  equal to the pro rata number of shares sold or transferred out of the
total number of shares issued to such recipient,  in an interest bearing deposit
in the  recipient's  name. The deposit shall serve as collateral and the Company
will have recourse to the deposit for the payment of the portion of the loan.

         Each of the  recipients  shall have  voting  rights  only in respect of
vested  shares.  The recipient  shall be entitled to exercise such voting rights
with respect to vested shares regardless of whether the recipient  actually pays
for the vested shares. As of April 30, 2003, 296,583 shares had vested.

         In the event that the Company declares payment of a cash dividend,  and
on the record date for the payment of such cash dividend offered shares are held
by the trustee for the  recipients  (including  offered  shares not yet vested),
then  the  Company  shall  transfer  to the  trustee,  for  the  account  of the
recipients,  cash  dividends in proportion to the amounts of offered shares held
by the trustee in favor of the recipients, after withholding any applicable tax.
The trustee  shall  transfer the cash  dividends to the  recipients  pro-rata to
their holdings,  regardless of whether their right to receive the offered shares
has vested.

         EMPLOYEE SHARE OPTION PLAN

         The Company's employee share option plan covers 800,000 of our ordinary
shares. Currently, there are no options outstanding, following the expiration of
all previously outstanding options in June 2002.

           ITEM 7. -- MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

MAJOR SHAREHOLDERS

         The Company  had, as of May 31,  2003,  16,690,643  shares  outstanding
(excluding  802,500  shares  issued  pursuant  to the  Company's  employees  and
officers  incentive plan which are not paid for). The following table indicates,
as of May 31, 2003, the number of ordinary shares owned by (i) all  shareholders
who we know own 5% or more of our  ordinary  shares and (ii) all of our  current
directors and officers as a group:



                                      -57-
<PAGE>

<TABLE>
<CAPTION>

NAME AND ADDRESS                                           NUMBER OF SHARES               PERCENT OF SHARES
                                                          BENEFICIALLY OWNED           BENEFICIALLY OWNED (%)

<S>                                                            <C>                                <C>
  Elbit Medical Holdings Ltd.(1)
  13 Yehuda Mozes Street
  Tel Aviv, Israel                                             10,269,784                         61.53

  Fidelity Management & Research Co.(2)
  82 Devonshire Street
  Boston, MA 02109-3614                                         1,430,800                           8.6

  Leumi Pia Trust Company Management Co. Ltd.(3)
  31-33 Montefiore Street
  Tel Aviv, Israel                                              1,063,750                           6.4

  All  directors  and officers of the Company as a                155,000(4)                         *
  group (10 persons)

</TABLE>

*        Less than 1%.

         The  shareholders  listed above do not have any different voting rights
from any other shareholder of Elscint. However, by virtue of the fact that Elbit
Medical  Holdings Ltd. holds more than a majority of the  outstanding  shares of
Elscint,  it can,  in all  likelihood,  control  the  direction  of  Elscint  at
shareholders' meetings with respect to proposals, the adoption of which requires
a simple majority vote.

          802,500  additional  shares were  granted to  directors,  officers and
employees of the Company (out of which 68,500 shares were subsequently  returned
to the plan) pursuant to the Company's officer and employees incentive plan . As
of the date of this report, 296,583 of the shares have vested.

----------------------------
1    Elbit Medical  Holdings  Ltd. is a  wholly-owned  subsidiary of EMI,  whose
     stock is listed on the Nasdaq  National  Market and on the TASE.  As of May
     31,  2003,  Europe-Israel,  whose  shares  are  listed  on the  TASE,  held
     approximately  56.7% of the issued  and  outstanding  share  capital of EMI
     (approximately  56% on a fully diluted basis). As of May 31, 2003,  Control
     Centers  held  approximately  80% of the issued and  outstanding  shares of
     Europe-Israel.  Control Centers is engaged,  through its direct holdings in
     Europe-Israel  and through  Europe-Israel's  direct and indirect wholly and
     partially  owned  subsidiaries  and  affiliates,   in  the  following  core
     businesses:  real estate investment,  development and operation of shopping
     and  entertainment  centers,  hi-tech and  bio-tech  investments  and hotel
     ownership and management.  Control  Centers also holds direct  interests in
     property development projects in Israel.

2    The amount  and nature of  beneficial  ownership  of these  shares is based
     solely on information included in a letter dated June 10, 2003, sent to the
     Company by Fidelity Management and Research Co.

3    The amount  and nature of  beneficial  ownership  of these  shares is based
     solely on  information  included in a letter dated April 14, 2003,  sent to
     the Company by Leumi Pia Trust Company Management Co. Ltd.

4    Represents  the number of shares  granted to directors  and officers of the
     Company  pursuant to the Company's  employees and officers  incentive plan,
     which shares have either  vested or will vest within 60 days after the date
     of this report.


                                      -58-
<PAGE>

         As of May 31,  2003,  on the books of our  transfer  agent  there  were
approximately 660 holders of record of our ordinary shares with addresses in the
United  States,  holding  approximately  52.9%  of our  issued  and  outstanding
ordinary shares.

RELATED PARTY TRANSACTIONS

         HOTEL AND LEISURE

         Guarantee: Elscint and Europe-Israel have provided guarantees and lines
of credit to various of Elscint's hotel owning subsidiaries. See " - loans".

         BEA - Jet Link: BEA receives, from time to time, aviation services from
Jet Link Ltd. (an aviation  company  controlled by Control  Centers) in exchange
for a payment based on the latter's price list, net of a discount of 5%.

         Line of Credit:  Elscint has provided to its  wholly-owned  subsidiary,
Elscint Holding and Investment NV (the holding company of the hotels), a line of
credit  for the  construction  and  development  of the  hotel  segment,  in the
following amounts:

   Linkage Base            Interest rate      Balance as of        Balance as of
                                              31/12/02 in          31/3/03 in
                                              millions (*)         millions (*)

          $**              LIBOR + 1.25%           113.1                116.6

          Euro             LIBOR + 2.5%             39.9                 40.4

          GB Pound         LIBOR + 2.5%             11.9                 12.0


(*)      These  balances are  presented in their  original  currency and include
         accrued  interest as of the balance sheet date. The balance as of March
         31, 2003  represents  the largest amount during the period from January
         1, 2002 through March 31, 2003.

(**)     Includes  loans of  approximately  $54.4 million and $54.7 million from
         Elscint Inc.  (Elscint's  wholly-owned  U.S.  subsidiary)  to BEA as of
         December 31, 2002 and March 31, 2003, respectively.

         COMMERCIAL AND ENTERTAINMENT CENTER

         Agreement  between CDPM and BEA: In October  2001 an agreement  between
BEA and CDPM  was  approved  by the  shareholders  meeting  of the  Company.  In
accordance  with the  agreement,  CDPM will  provide  logistical,  planning  and
supervisory  services in connection with the renovation of the Bucuresti  Hotel,
in exchange for  consideration  equal to the lower of 5% of the renovation costs
(excluding general and administrative  expenses and financing expenses) or 5% of
U.S. $30 million.

         Agreement between CDPM and SLS: In May 2002, our shareholders  approved
a turn-key contracting agreement by and between SLS and CDPM, for the completion
of the  construction  works of the center for a  consideration  of $57.7 million
plus Value Added Tax (if applicable),  subject to reductions and adjustments due
to payments by SLS to  sub-contractors,  suppliers,  consultants and other third
parties  in  connection   with  the   construction   work.  The  amount  of  the
consideration was determined on the basis of a calculation of the amount of work
remaining to be performed,  as at March 1, 2002.  From March 1, 2002 until March
31, 2003 SLS made such payments on account of  implementation  of the project in
the  total  sum of U.S.  $25.2  million.  As of the  date of  this  report,  the
agreement had not yet been closed. Upon the closing of the agreement,  SLS is to
pay to CDPM an advance of $3  million,  on  account  of the  consideration  and,
concurrently, CDPM is to provide SLS with a bank guarantee, at the rate of 5% of
the Work Consideration. In addition, SLS committed, as part of the agreement, to
assign to CDPM all the rights and obligations, based on the agreements, which it
signed with various suppliers,  except for those specified in the agreement. The
agreement includes a number of



                                      -59-
<PAGE>

conditions,  the breach of which is considered as a  fundamental  breach,  which
confers the remedies  stated in the  agreement.  Nevertheless,  further to SLS's
request CDPM is assisting in the construction and management of the project.

         Line of  Credit:  Elscint  has  provided  to SLS a credit  line for the
construction works at the commercial and entertainment  center,  which is linked
to the Israeli CPI and bears annual interest of 5%.

         The  balance  of the  loan  (including  accrued  interest)  was NIS 390
million  and NIS 452  million  as of  December  31,  2002 and  March  31,  2003,
respectively.

         INVESTMENTS IN BIO-TECHNOLOGY COMPANIES

         Line of Credit.  Elscint  has  provided  to EBM a $30  million  line of
credit for  investments  in  bio-technology  companies  and for the financing of
EBM's  operations.  This line of credit is linked to the U.S.  dollar  and bears
annual interest of LIBOR + 1.25%.

         The balance of the loan (including  accrued interest) was $10.3 million
and $10.5 million as of December 31, 2002 and March 31, 2003, respectively.

         OTHER

         Cost  Sharing  Agreement.   In  October  2000,  Elscint's  shareholders
approved an agreement with Europe-Israel and EMI,  retroactively from January 1,
2000 and until  December  31,  2002,  for the  allocation  of costs and expenses
incurred  in  connection  with  services  rendered to those  companies  by their
in-house legal, economic and accounting departments. Each party to the agreement
is  entitled  to  terminate  it at the end of each  12-month  period by giving a
60-day advance notice to the other parties.  The allocation would be carried out
so that  Europe-Israel  bears 35%, while Elscint and EMI each bear 32.5% of such
costs.  These  percentage  shares  reflect a general  estimate of the companies'
management of the actual utilization rate of these departments' services by each
of the companies based on the actual services  provided thereby during the first
half of 2000.  Should these  percentage  rates  deviate from the actual  service
rates by more than 10%,  the parties  will be charged on the basis of the actual
cost  allocation.  In November 2002 , Elscint's board of directors  approved the
extension of the agreement for an additional three years .

         Lease. As of September 2000, Elscint has been leasing office space from
Control Centers.  The annual rent under such lease is approximately  $85,000 per
annum, including payments to the management company of the building. The term of
the lease is three  years,  and  Elscint has an option to extend such term to an
additional 23 months.

         Credit line from Bank Leumi. Elscint and its investee companies conduct
credit, deposit and management of security portfolio transactions with the bank,
which is an indirect  interested  party in the Company.  These  transactions are
conducted  during the  ordinary  course of business and under  customary  market
terms and conditions.

           ITEM 8. -- FINANCIAL INFORMATION

CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

         See Consolidated Financial Statements included in Item 18.

LEGAL PROCEEDINGS

         Class Action by Minority  Shareholders.  In September 1999, Elscint was
served with a claim and a motion to certify the claim as a class action filed in
the District  Court in Haifa,  Israel by a shareholder  on behalf of all persons
who were minority  shareholders as of the date the claim was submitted,  as well
as



                                      -60-
<PAGE>

all minority  shareholders  who held shares on February 18, 1999.  The claim and
motion were filed against  Elscint,  EMI, Elbit Medical Holdings Ltd., Elron and
six former directors of Elscint.

         The  plaintiff  requested (i) relief of  approximately  NIS 1.9 million
(the plaintiff subsequently requested to amend the relief to NIS 2,491,800) plus
expenses and attorney's fees for him and (ii) approximately  $148.5 million (the
plaintiff  subsequently  requested  to amend the  relief to $158  million)  plus
expenses and attorney's fees for alleged damages suffered by the class.

         The main  allegation of this claim is that EMI,  through the actions of
the former  directors  of Elscint,  caused  Elscint  damages  and  discriminated
against the minority  shareholders  of Elscint.  The plaintiff also alleged that
Elscint's  former  directors acted while being in a conflict of interest between
the interests of Elscint and its minority shareholders, on the one hand, and the
interests of the control shareholders of Elscint, on the other hand.

         The plaintiff  requested that Elscint,  or alternatively all or part of
the defendants, be ordered to purchase from each members of the class all shares
held by such  members at a price of $27.46 per  share.  On October 7, 1999,  the
plaintiff  filed a motion to amend his claim to  include  an  additional  cause,
being EMI's  violation of its offer to acquire all shares of Elscint held by the
public at a price per share of $14. On November  15, 1999,  the Israeli  Supreme
Court ordered that this claim be removed from the District Court in Haifa to the
District Court in Tel-Aviv.  In June 2000, Elscint filed a motion to dismiss the
motion to certify the claim as a class  action for the  following  reasons:  (i)
failure by the  plaintiffs to pay the court filing fee, (ii)  arguments  made in
the claim can only be raised by Elscint  itself and not by the  plaintiffs,  and
(iii) the  inapplicability  of the Israeli  Securities Law to Elscint due to the
fact that its shares are traded  outside of Israel only.  On July 19, 2000,  EMI
filed a motion to dismiss the motion to certify the claim as a class action,  on
the grounds of lack of cause, lack of opposition and failure by the plaintiff to
pay the court filing fee. In October  2000,  the  plaintiff  and the  defendants
reached a procedural  agreement,  providing  that all the  proceedings  shall be
withheld  until the Israeli  Supreme  Court shall have  rendered its ruling with
respect to a motion filed by certain investors  (described below) for permission
to appeal a ruling of the Haifa  District  Court to dismiss the  application  to
certify their claim as a class action.

         Class Action by Investors.  In November 1999, Elscint was served with a
claim and a motion to  certify  the claim as a class  action,  submitted  in the
District Court in Haifa against Elscint,  EMI,  Europe-Israel,  Control Centers,
Marina  Herzlia  Limited  Partnership  1988  (which  is  controlled  by  Control
Centers), Elron and 25 past and present directors of the above companies.

         The claim was  submitted by a number of investors and other persons and
entities  who hold shares in  Elscint.  The motion to  recognize  the claim as a
class action was submitted on behalf of those persons who held shares of Elscint
on September 6, 1999, and continued to hold such shares on the date on which the
motion was filed, excluding the defendants.

         The plaintiffs  alleged that the minority  shareholders of Elscint were
discriminated against as a result of various activities carried out by Elscint's
controlling  shareholders and its board of directors.  The allegations raised by
the plaintiffs included the following:

         o    Immediately  after  the  sale  in  1998  of  substantially  all of
              Elscint's  assets,  Elscint's  directors who were elected by Elron
              refrained from distributing dividends to Elscint's shareholders in
              order to increase the potential sale price of EMI's shares held by
              Elron to a third party;

         o    Elscint refrained from enforcing EMI's offer to purchase Elscint's
              shares held by the public at a price per share of $14;

         o    Elscint's  agreement to purchase Mr. Emmanuel Gill's shares of EMI
              had no reasonable financial merit;

         o    Elscint entered into agreements with its controlling  shareholders
              under  terms  that  were (i)  unfavorable  to,  and  discriminated
              against,  Elscint's  minority  shareholders,  (ii) contrary to the
              purposes  set  forth  in  Elscint's  memorandum  and  articles  of
              association,  and  it  did  not  comply  with  legal  requirements
              regarding   approval   of   transactions   with  its   controlling
              shareholders;



                                      -61-
<PAGE>

         o    Elscint did not inform its  shareholders  of its  negotiations  to
              acquire  the  hotel  division  and made  announcements  that  were
              misleading and omitted material information; and

         o    Elscint violated Israeli law by entering into agreements to assist
              in redeeming its shares.

         The  remedy  requested  by the  plaintiffs  was that EMI be  ordered to
execute  the  alleged  buy-out of Elscint  shares  held by the public at $14 per
share.  Alternatively,  the plaintiffs requested compensation for damages, which
they allegedly suffered, and the rescission of the transactions with controlling
shareholders.  In addition,  the plaintiffs demanded,  among other remedies, the
return by Elscint of all amounts  paid in  connection  with the  acquisition  in
September  1999 of the hotel  division.  Certain of the remedies  have also been
requested as derivative claims on behalf of Elscint.

         On December 26, 1999,  Elscint and other  defendants  filed  motions to
dismiss the claim. The defendants alleged, among other things, that the remedies
requested  in the claim could only be claimed by Elscint,  and that the claim is
not suitable to be certified as a class  action.  In August 2000,  the motion to
certify  the claim as a class  action was  dismissed  before the  hearing of the
motion on its merits. The claim itself remains pending.

         Currently, two separate proceedings are pending:

         (1)   Before the Israeli  Supreme Court - On November 8, 2000,  Elscint
was advised that several,  but not all, of the  plaintiffs,  have filed a motion
with the Israeli  Supreme  Court for  permission  to appeal the  judgment of the
District  Court in Haifa to dismiss  the motion to certify  the claim as a class
action.  Elscint has filed a written  response to this motion.  In May 2001, the
Israeli  Attorney  General  filed  a  notice  with  the  Supreme  Court  that in
accordance with the authority  granted to him under law he joins the proceedings
and filed his position,  which supports the plaintiffs' legal claims. In October
2001, the Supreme Court  instructed the plaintiffs to provide a guarantee in the
sum of NIS 100,000 to ensure the defendants' expenses in the appeal. On November
21, 2001,  the Supreme Court ordered the parties to submit  summary  briefs,  on
which the Supreme Court would base its decision in the appeal. As of the date of
this report,  the Supreme Court has not rendered its decision in the appeal.  On
July 9, 2002, the plaintiffs  filed a request to accelerate the Supreme  Court's
decision in this case.

         (2) Before the Haifa District Court - Counsel for the plaintiffs claims
that the claim is of a declarative nature and therefore the court filing fee due
is approximately NIS 1,600  (approximately $400 at the time of the filing of the
claim). Counsel for the defendants claims that the relief claimed is a financial
relief and that according to  calculations  made by such counsel,  the amount of
court  fee  (taking  into  account  all  of  the  relieves  claimed)  is  either
approximately NIS 1.3 million (approximately  $300,000 at the time of the filing
of the claim) or approximately NIS 20.09 million (approximately $4.55 million at
the time of the filing of the claim).  In the course of interim  procedure  that
took place in February  2001,  the court  repeated  its  position  that the real
relief claimed by the plaintiffs is in fact a financial  relief and that counsel
for  the  plaintiffs  should  adjust  the  amount  of the  court  filing  fee in
accordance with such financial  relief.  During this hearing,  the court decided
that the date for  filing  statements  of  defense  by the  defendants  shall be
postponed.  Since the court  filing fees had not been paid,  on March 11,  2001,
Elscint,  together with 7 other  respondents,  filed a request with the District
Court in Haifa to hand down a decision regarding  assessment of the court filing
fees due under the claim.  Elscint's  counsel's opinion with respect to the fees
was supported by the Attorney  General's position filed on May 14, 2001 with the
court.  On April 25,  2002,  the court  showed a strong  tendency  to accept the
plaintiffs' view concerning the court fees. However,  Elscint's counsel strongly
opposed such approach of the court,  and in their opinion,  succeeded in causing
the court to doubt its ability to cancel the  previous  decision of the court in
the interim  procedure or its ability to enable the  plaintiffs  to postpone the
payment of these  fees.  The court  decided to render its ruling  regarding  the
court fees at a later date,  which has not been  determined as yet.

         Letter from New Hampshire  Insurance  Company.  On January 26, 2003, we
received  a letter  from  counsel to New  Hampshire  Insurance  Company,  acting
through its agent, AIG Europe (UK) Ltd.


                                      -62-
<PAGE>

("New  Hampshire").  New Hampshire is one of the insurers of Europe-Israel,  EMI
and the Company (the "Insured Companies"), including insurance pertaining to the
class action by investors described above.

         In the letter,  New  Hampshire  made  certain  allegations  against the
Insured  Companies,  including,  inter alia, that the Insured Companies breached
their  disclosure  duties  under the Israeli  Insurance  Contract  Law,  1981 by
failing to disclose to New Hampshire material  information prior to the issuance
of  additional  coverage  under  the  policy  purchased  by  Europe-Israel  (the
"Policy"),  effective as of July 1999 (the "Additional Coverage"),  and prior to
the  replacement of the Policy and the Additional  Coverage by the issuance of a
new policy effective as of August 1999 (the "Replacement Coverage").  The letter
states that unless the Insured Companies  indicate that the  circumstances  were
different than those described in the letter,  the Policy,  Additional  Coverage
and  the  Replacement  Coverage  issued  by New  Hampshire  will  be  cancelled.
Elscint's counsel sent a reply on behalf of  Europe-Israel,  EMI and the Company
on March 20, 2003, in which the  allegations of New Hampshire were rejected.  We
have not yet received an answer from New Hampshire to our counsel's reply.

         Claims  Relating  to the  Sale of the NM,  MRI  and CT  Businesses.  In
connection  with the sale in 1998 of  substantially  all of Elscint's  assets to
GEMS and Picker (today  Philips),  the following  material  claims were filed or
threatened against Elscint:

         1. Former  distributor in Greece:  In October 1999,  Elscint received a
claim  letter  from  a  former  distributor  of  Elscint  in  Greece,   claiming
approximately  $27  million in  damages  as a result of an  alleged  breach of a
distribution agreement. Elscint denied all allegations in a letter dated October
19,  1999,  and  received  another  letter on  November  9,  1999,  in which the
plaintiff asked that Elscint arrange for all of the plaintiff's  contracts to be
assigned to and assumed by GEMS.  Elscint  discussed  the merit of these  claims
with GEMS, but was not informed by either GEMS or the distributor of the outcome
of  their  actions.  Since  the  end  of  1999,  Elscint  did  not  receive  any
communication from this distributor with respect to the foregoing matter.

         2.  Distributors  and Agents:  Various  other  distributors  of Elscint
and/or its  subsidiaries  have sent  letters to Elscint,  demanding  payment for
damages that they have  allegedly  suffered as a result of the sale of assets in
1998.  The aggregate  amount  demanded under these letters is  approximately  $4
million. Additional letters of demand did not specify the amounts claimed.

         3. Customers: Elscint is a defendant in several claims filed by certain
of its customers (including some demanding the cancellation of sales and service
agreements) totaling  approximately $6 million. These claims allege, among other
things, damages caused to medical equipment acquired from Elscint.

         Claims relating to the hotel business
         -------------------------------------

         Bucuresti  Hotel  Complex,  Bucharest,  Romania.  In December 2000, BEA
acquired  80% of the  capital and voting  rights in Desca  Investments  Ltd.,  a
Cypriot company ("Desca"),  which at the time held 100% of Domino  International
Hotels s.r.l, a Romanian limited liability company ("Domino"). In December 1999,
Domino  successfully  bid for the acquisition  from the Romanian State Ownership
Fund (the "SOF") of 66.18% of the outstanding shares (the "Bucuresti Shares") of
SC Bucuresti  Turism S.A.  ("Bucuresti"),  a Romanian  joint stock  company that
owned the rights to the Bucuresti  Hotel.  The Bucuresti Shares were offered for
sale  through  a tender  for the  privatization  of the  holdings  of the SOF in
Bucuresti  (the   foregoing   transaction  is  referred  to  as  the  "Bucuresti
Transaction").

         Under Romanian law, Domino,  as the holder of 66.18% of the outstanding
shares of Bucuresti, controls Bucuresti. The acquisition of the Bucuresti Shares
by Domino was delayed from  December  1999 to December 2000 due to various legal
disputes  between  Domino,  the SOF and  unrelated  third  parties who contested
Domino's  right  to  acquire  the  Bucuresti  Shares  on the  grounds  that  the
privatization  tender was conducted  improperly by the SOF. However, in November
2000 the Romanian  Supreme Court "finally and  irrevocably"  determined that the
Bucuresti Transaction should be consummated and that the Bucuresti shares should
be sold to Domino.  The Bucuresti  Transaction  was  consummated on December 11,
2000.



                                      -63-
<PAGE>

         An employee union active in the Bucuresti  Hotel and other parties have
filed a petition with the Supreme Court to re-consider  its foregoing  decision.
The ground for this  petition is that the  employees  and the other parties were
not summoned to appear at one of the  hearings of the court,  due to a technical
error  of the  court  administration,  and  were  thus  allegedly  denied a fair
opportunity to present their  arguments to the court.  In July 2002, the Supreme
Court of Romania dismissed the petition.

         An additional  claim  submitted by certain  individuals  requesting the
nullification  of the public  tender for the sale of the Bucuresti  Shares,  the
privatization  contract and the transfer of the  Bucuresti  Shares to Domino was
also  dismissed  outright by the courts in Romania on procedural  grounds before
the matter was heard on its merits.

         A criminal  procedure has been instigated against 17 former officers of
the SOF  responsible  for  the  execution  of the  tender  for  the  sale of the
Bucuresti Shares on allegations of fraudulent conduct.  Although Domino is not a
party  to  these  proceedings  and is  not  cited  as an  accused  party  on the
indictment,  its local  counsel  advised  us that the  indictment  does  contain
certain  allegations  regarding  the validity of the  privatization  proceedings
which may  indirectly  affect the ownership  interest by Domino of the Bucuresti
Shares.

         Bucuresti  and Domino  are  engaged in  several  other  litigations  in
Romania  arising in the ordinary  course of business or which are not considered
material.

         Office of the Chief Scientist
         -----------------------------

         The Israeli government encourages industrial companies by funding their
research  and   development   activities.   Elscint,   in  the  past,   received
royalty-bearing  participation  grants from the Office of the Chief Scientist of
the Israeli  Ministry of Industry and Trade (the "OCS"),  for the development of
its medical imaging systems and products.

         Elscint  agreed to pay royalties  for sales of products,  for which the
research and development was funded  principally by the OCS or by third parties.
The amount of each royalty payment payable to the OCS is computed on the portion
of sales  proceeds  from  such  products  at rates  varying  from 1% to 5%.  The
commitment to the OCS is limited to the amount it funded.

         In 1999, we received a letter from the OCS requesting  certain  details
regarding the previous  years'  computation  of royalties.  This matter is still
under review,  and we are not able to determine if we will have any liability to
the OCS as a result of these discussions.

         Pursuant to the sale of business  agreement  signed between Elscint and
GEMS,  Elscint was  responsible  for 60%, and GEMS for 40%, of the amount of $11
million of  royalties  payment by Elscint to the OCS  relating  to MRI  business
activity.  It was also agreed that NM and MRI know-how,  products and components
funded by the OCS and currently produced only in Israel will not be made outside
Israel  unless GEMS seeks the  approval  of the OCS.  Elscint  committed  to pay
royalties to the OCS in the amount in excess of $1.5  million of  royalties  for
sales of MRI products by GEMS,  which contain  certain  know-how and  components
funded by the OCS. In 1999,  Elscint  received a letter from the OCS  requesting
details  regarding  the  proceeds  from GEMS  allocated  to the MRI product line
according to which the above-mentioned royalties payment was computed.

         Elscint has been conducting  internal inquiries and is negotiating with
the OCS in order to resolve all matters  which are the subject of disputes  with
the OCS.  At this time it is not clear  what  amounts,  if any,  Elscint  may be
required to pay to the OCS in settlement of these royalty payment claims.

          Ordinary Course of Business. Elscint and its subsidiaries are involved
from time to time in litigation  arising out of the ordinary course of Elscint's
business  (including various claims by subcontractors  and suppliers).  Although
the outcome of each of these cases is  uncertain  at this time,  we believe that
the resolution of such litigation will not have a material adverse effect on our
financial position.


                                      -64-
<PAGE>

DIVIDENDS

         On  September  19,  2002,  Elscint  announced  that,  in  light  of its
assessment  regarding its excess cash and the reduction in short term investment
opportunities,  it had decided to focus at that stage on the maximization of its
current investments, and therefore its board of directors declared a dividend of
$1.10 per each ordinary  share,  aggregating  approximately  $19.3 million.  The
dividend was payable on October 10, 2002. The  distribution  of the dividend was
ratified by the Company's  shareholders in their Annual Meeting held on December
31, 2002.

          The  distribution  of this dividend is not  necessarily  an indication
that the Company will or will not  distribute any future cash  dividends.  As of
the date of this report we do not expect to pay future  dividends to the holders
of our ordinary shares in the foreseeable future. Instead, we expect to reinvest
any  available  surplus in our  businesses.  Future  dividends  on our  ordinary
shares, if any, will be determined by our board of directors.

         We may incur indebtedness in the future, which may prohibit or restrict
the payment of dividends.  In addition,  pursuant to the 1998  agreement for the
sale of our NM and MRI  businesses  to GEMS,  we agreed to  maintain a net worth
equal to or greater than $40 million in fiscal 2000,  decreasing  by $10 million
per each year through 2003, and that through  December 31, 2003 we will not make
any distributions of assets,  including cash, if our net worth immediately after
such  distribution  will be less  than the  minimum  amount  required  for us to
maintain  our  business.  See Note  20(A)(5)  of the  Notes to the  Consolidated
Financial Statements.

           ITEM 9. -- OFFER AND LISTING

          Elscint's ordinary shares are listed on the NYSE under the symbol ELT.
The annual  high and low sale prices for the  ordinary  shares for the five most
recent full financial years are:

             YEAR ENDED DECEMBER 31,                 LOW($)    HIGH($)
             -----------------------                 ------    -------

             1998                                    6 1/4      12 9/16
             1999                                    5 1/4      13 1/4
             2000                                    31 3/16    10 1/4
             2001                                    3.51       5.00
             2002                                    2.95       6.14


         The quarterly  high and low sale prices for our ordinary  shares during
the two most recent full financial years and the first subsequent quarter were:

             YEAR ENDED DECEMBER 31, 2001
             ----------------------------

             First Quarter                          3.92       5.0
             Second Quarter                         3.70       4.49
             Third Quarter                          3.55       4.22
             Fourth Quarter                         3.51       4.50

             YEAR ENDED DECEMBER 31, 2002
             ----------------------------

             First Quarter                          4.35       6.14
             Second Quarter                         3.5        4.45
             Third Quarter                          3.39       4.44
             Fourth Quarter                         2.95       4.15

                                      -65-
<PAGE>

             2003
             ----

             First Quarter                          3.35       4.19

         The monthly high and low sale prices for our ordinary shares during the
six months of December 2002 through May 2003 were:


             MONTH                                  LOW($)     HIGH($)
             -----                                  ------     -------

             December 2002                          3.6        4.06
             January 2003                           3.35       3.99
             February 2003                          3.48       3.65
             March 2003                             3.6        4.19
             April 2003                             3.95       4.27
             May 2003                               3.78       4.1

         On May 31, 2003, the closing price of our ordinary shares was $3.9.

           ITEM 10. -- ADDITIONAL INFORMATION

MEMORANDUM AND ARTICLES OF ASSOCIATION

         PURPOSES AND OBJECTS OF THE COMPANY; CONTRIBUTIONS

         We are a public company  registered under the Israeli  Companies Law of
1999 (the "Companies Law") as Elscint Limited, registration number 52-002905-9.

         Pursuant to our Memorandum of  Association,  we were formed with a very
wide range of objects.  These  objects  include,  among  others,  the purpose of
carrying  on  business  relating to  instruments  and  systems  based on physics
know-how,  components  or  portions  thereof;  business  relating  to  fields of
activity in respect of electronic or other similar  developments  by the company
or acquired by it and carrying  out various  activities  relating  thereto or in
connection therewith,  advantageous to these activities or ancillary thereto; we
may conduct  business as  capitalists  and  financiers in Israel or in any other
place  and to  invest  money  as may be  deemed  fit from  time to  time,  issue
securities,  guarantees  and  obligations,  borrow or raise money and secure the
payment thereof, and carry out various other activities.

         At our shareholders'  meeting held on October 2, 2000, a resolution was
adopted  approving the amendment of our articles of  association by adding a new
article  authorizing us to make, from time to time,  contributions of reasonable
sums  for  worthy  causes  even if such  contributions  do not fall  within  the
Company's  business  considerations.  Our board of  directors,  or any committee
appointed by it, is authorized to determine, in its discretion,  with respect to
any such contribution,  the amount thereof,  its purpose,  the entity to receive
the contribution and any other term relating thereto.



                                      -66-
<PAGE>

         APPOINTMENT OF DIRECTORS

         Our  directors  are  appointed  by our  shareholders  at  their  annual
meeting.  The  directors  hold  office  until  the next  annual  meeting  of our
shareholders,  which is required to be held at least once during every  calendar
year but not more than fifteen months after the last preceding  meeting.  In the
intervals  between  annual  meetings,  the board of  directors  may  appoint new
directors to fill vacancies on or increase the number of members of the board of
directors.

         In  accordance  with our articles of  association,  our  directors  are
appointed by an ordinary  majority at a general meeting of shareholders and they
hold office until the next annual meeting of  shareholders  or until they resign
or other circumstances  listed in our articles of association occur, except that
external  directors  are elected in  accordance  with  applicable  law and stock
exchange  rules  applicable  to us. A  director  need not hold any shares of the
Company. The board of directors may appoint one or more additional directors.

         ALTERNATE DIRECTORS

          Elscint's  articles  of  association  provide  that any  director  may
appoint,  by written notice,  another person to serve as an alternate  director,
and such appointing director may also remove such alternate  director.  A person
may not serve as an alternate  director unless such person is qualified to serve
as a director.  A person  serving as a director or as an alternate  director may
not act as the alternate  director of another director.  Any alternate  director
possesses  all the rights and  obligations  of the  director who  appointed  him
except that the alternate  has no standing at any meeting  while the  appointing
director  is  present.  The  alternate  director  is  not  entitled  to  receive
remuneration for his services.

         Unless  the  appointing  director  limits  the  time  or  scope  of the
appointment,  the appointment is effective for all purposes until the appointing
director ceases to be a director or terminates the appointment.  The appointment
of an alternate  director does not in itself diminish the  responsibility of the
appointing director as a director.

         Our  articles of  association  also provide that our board of directors
may, with the approval of three quarters of the  directors,  delegate its powers
to one or more  committees of the board of directors,  as it deems  appropriate.
Such delegation may be exercised subject to the provisions of the Companies Law,
which limits the matters that the board of directors  may delegate to committees
(such as the  determination of the general  policies of Elscint).  The Companies
Law requires that each  committee  that is authorized to exercise  powers of the
board of directors must include at least one external director.

         EXTERNAL AND INDEPENDENT DIRECTORS

         Pursuant  to SEC and  NYSE  rules,  each  audit  committee  of a listed
company  must have at least three  members who are  independent  directors.  Our
audit committee members are Messrs.  Gal, Lion (each, an external  director) and
Peretz, all of whom fulfill the independence requirement.

         The Companies Law requires Israeli companies with shares that have been
offered to the  public in or outside of Israel to appoint at least two  external
directors.  The  Companies  Law  provides  for  certain  qualifications  that  a
candidate  for  external   directorship  must  comply  with.  Among  such  other
requirements,  a person may not be  appointed  as an  external  director if such
person or person's  relative,  partner or employer,  or any entity controlled by
such person, has, at the date of appointment,  or had at any



                                      -67-
<PAGE>

time during the two years preceding such date, any affiliation with the company,
any entity controlling the company or any entity controlled by the company or by
the entity controlling the company. The term "affiliation" is broadly defined in
the Companies Law.

         In  addition,  no person  may  serve as an  external  director  if such
person's  position  or other  business  creates,  or may  create,  conflicts  of
interest with the person's position as an external director, or if such position
or other  business  may impair  such  person's  ability to serve as an  external
director. The Companies Law provides for additional  qualification  requirements
that are imposed on such candidates.

         The initial  term of an external  director is three years and such term
may be  extended  for an  additional  three-year  period.  Each  committee  of a
company's  board of directors that is authorized to exercise powers of the board
of  directors  is required to include at least one  external  director,  and all
external directors must be members of the company's audit committee. Regulations
promulgated  under the  Companies  Law  provide  that the  applicability  of the
Companies Law with respect to the nomination of external directors by an Israeli
company whose shares are publicly  traded only outside of Israel (as is the case
with Elscint)  commenced in August 2000, and also that the external directors of
such a company are not required to be residents of Israel.

         An external  director is entitled to  reimbursement  of expenses and to
monetary and other compensation as provided in regulations promulgated under the
Companies   Law,  but  is  otherwise   prohibited   from   receiving  any  other
compensation,  directly or indirectly,  in connection with services  provided by
such  person as an  external  director.  Our board of  directors  has decided to
remunerate  its  external  directors  with the  highest  amount  allowed by such
regulations,  which decision was approved by the Company's shareholders at their
annual meeting on October 2, 2000.

         The Companies Law further  provides  that external  directors  shall be
appointed by a general  meeting of  shareholders,  and that the approval of such
appointment  requires  that at least a  majority  of the  votes of  shareholders
present  at the  general  meeting  in  person  or by proxy  have  voted for such
proposal,  provided  that (i) such  majority  vote at the general  meeting shall
include  at  least  one  third  (1/3)  of the  total  votes  of  non-controlling
shareholders  present at such general  meeting in person or by proxy,  excluding
abstaining  votes,  or (ii)  the  total  number  of  votes  of the  shareholders
mentioned  in clause (i) above that have voted  against such  proposal  does not
exceed one percent (1%) of the total voting rights in the company.

         The Companies  Law also  provides  that a general  meeting at which the
appointment  of external  directors  is to be  considered  shall not be convened
unless the candidate for external  directorship has declared to the company that
he  fulfills or  complies  with the  qualifications  for his  appointment  as an
external director.

         THE POWERS OF THE DIRECTORS

         The  power  of our  directors  to vote on a  proposal,  arrangement  or
contract  in which the  director  has a  personal  interest  is  limited  by the
relevant  provisions  of the  Companies  Law.  In  addition,  the  power  of our
directors to approve  compensation to themselves or to any of the members of the
board of  directors,  requires  the  approval  of the  audit  committee  and the
shareholders   at  a  general  meeting  (See  "  -  Approval  of  Related  Party
Transactions").

         Under Article 44 of our articles of  association,  our  directors  may,
from time to time and at their  discretion,  raise or borrow or secure,  on such
terms and  conditions as they consider  appropriate,  the payments of any sum or
sums of money for our purposes.

         APPROVAL OF CERTAIN TRANSACTIONS; AUDIT COMMITTEE

         The Companies Law requires  public  companies,  including  Elscint,  to
appoint an audit committee.  The responsibilities of the audit committee include
identifying  irregularities  in the  management  of the  company's  business and
approving  related  party  transactions  and  transactions  with officers of the
company,  as required by law. An audit  committee must consist of at least three
members,  and include all of the  company's  external  directors.  However,  the
chairman  of the board of  directors,  any  director



                                      -68-
<PAGE>

employed  by the  company or  rendering  services  to the company on a permanent
basis,   any   controlling   shareholder  and  any  relative  of  a  controlling
shareholder, may not be members of the audit committee.

         INTERNAL AUDITOR

         The Companies  Law requires the board of directors of a public  company
to appoint an internal  auditor  proposed by the audit committee and approved by
the board of  directors.  A person  who does not  satisfy  certain  independence
requirements  may not be  appointed  as an  internal  auditor.  The  role of the
internal  auditor is to  examine,  among other  things,  the  compliance  of the
company's conduct with applicable law and orderly business procedures. Following
the recommendation of our audit committee,  our board of directors appointed, on
January 1, 2001,  Mr. Eli Birnboim,  CPA, of the offices of  Rosenblum-Holtzman,
CPA, as Elscint's internal auditor.

         RIGHTS ATTACHED TO SHARES

         Our registered  share capital  consists of a single class of 24,000,000
ordinary  shares,  par value NIS 0.05 per share,  of which  16,690,643  ordinary
shares (excluding 802,500 shares issued pursuant to the Company's  employees and
officers incentive plan, which are not yet paid for) were issued and outstanding
as of December 31, 2002. All  outstanding  ordinary  shares are validly  issued,
fully paid and non-assessable. The rights attached to the ordinary shares are as
follows:

         Dividend rights
         ---------------

         Subject to the  rights of  persons,  if any,  entitled  to shares  with
special rights as to dividend,  and unless otherwise decided by the Company at a
general meeting of its  shareholders,  the profits of the Company  available for
distribution  and declared as dividend will be distributed  with respect to such
shares that are entitled to dividend  distribution.  The board of directors  may
propose a  dividend  with  respect to any fiscal  year only out of  profits,  in
accordance  with the provisions of the Companies Law.  Declaration of a dividend
requires approval by an ordinary shareholders'  resolution,  which may decrease,
but not increase, the amount proposed by the board of directors.

         One year after a dividend has been declared and is still unclaimed, the
board of  directors  is entitled to invest or utilize  the  unclaimed  amount of
dividend in any manner to the benefit of the Company until it is claimed. We are
not obligated to pay interest or linkage on an unclaimed dividend.

         The directors may, from time to time, pay to the Company's shareholders
on account of the next  forthcoming  dividend an interim dividend which in their
judgment is justified in view of the Company's position.

         Voting rights
         -------------

         Holders of ordinary  shares have one vote for each ordinary  share held
by them on all  matters  submitted  to a vote of the  shareholders.  Such voting
rights may be affected by the creation of any special rights to the holders of a
class of shares with preferential rights that may be authorized in the future in
the manner  provided for under the  Companies  Law.  The quorum  required for an
ordinary meeting of shareholders  consists of at least two shareholders  present
in person or by proxy who hold or represent,  in the aggregate,  at least 51% of
the issued share  capital.  In the event that a quorum is not present  within 30
minutes of the  scheduled  time,  the  meeting,  if  convened  at the request of
shareholders,  shall be dissolved.  In any other case, the shareholders' meeting
will be adjourned to the same day of the  following  week,  at the same time and
place,  or to such  other  day,  time and  place as the board of  directors  may
determine.  At such  adjourned  meeting the two members  present in person or by
proxy who hold or represent, in the aggregate,  26% of our issued share capital,
will constitute a quorum.

         An  ordinary  resolution,  such as a  resolution  for the  election  of
directors, the declaration of dividends or the appointment of auditors, requires
approval by the holders of a majority of the voting  rights  represented  at the
meeting,  in person or by proxy,  and  voting  thereon.  Under our  articles  of
association,   resolutions  such  as  a  resolution  amending  the  articles  of
association or approving any change in capitalization,  liquidation,  changes in
the objectives of the Company,  or



                                      -69-
<PAGE>

the name of the  Company,  or other  changes as  specified  in our  articles  of
association, require approval of a special majority, representing the holders of
no less than 75% of the voting rights  represented at the meeting,  in person or
by proxy, and voting thereon.

         Rights to the  Company's profits
         -------------  -----------------

         Our shareholders have the rights to share in our profits distributed as
a dividend and any other permitted distribution.

         Rights in the event of liquidation
         ----------------------------------

         Subject to approval of a special majority reflecting the holders of not
less than 75% of the voting rights  represented in person or by proxy and voting
thereon at a meeting  convened for such purpose,  a liquidator  may divide among
the  shareholders  the assets of the Company.  The  resolution  authorizing  the
division of assets may authorize a division  other than in  accordance  with the
legal rights of the  shareholders  and may confer special rights on any class of
shareholders, with reservation, in the case of division other than in accordance
with the legal  rights,  of  dissenting  rights of such  shareholders  and other
rights.

         In December  2001,  the Company  issued 802,500 shares to the Company's
directors,  officers and  employees,  of which 68,500  shares were  subsequently
returned to the plan. The  recipients'  right to receive these shares vests over
two or three years,  and voting rights attach to the shares as they vest. In the
event that the Company declares a cash dividend, the recipients will be entitled
to such cash  dividend  regardless  of whether their right to receive the shares
has vested.

         Changing Rights Attached to Shares
         ----------------------------------

         According to our articles of association, in order to change the rights
attached to any class of shares, the consent in writing of the holders of all of
the issued shares of that class must be obtained, or at a special meeting of the
shareholders  of that  class of shares  convened  for such  purpose  adopting  a
resolution  to change such  rights by a special  majority of at least 75% of the
votes of shareholders  participating and voting at such meeting.  The provisions
relating to general  meetings  shall  apply,  except that the  necessary  quorum
required shall be two person holding or representing by proxy at least one third
of the issued shares of that class. In an adjourned meeting,  those shareholders
present in person or by proxy shall be deemed to constitute a quorum. The rights
conferred  upon the holders of the shares of any class issued with  preferred or
other rights shall not, unless expressly provided for by the terms of the shares
of that class, be deemed to be varied by the creation or issue of further shares
ranking pari-passu with that class.

         ANNUAL AND EXTRAORDINARY MEETINGS

         In  accordance  with the  Companies  Law, the board of  directors  must
convene an annual meeting of shareholders at least once every calendar year, and
no later than within  fifteen  months of the last annual  meeting.  Notice of at
least 21 days prior to the date of the  meeting is  required.  An  extraordinary
meeting may be convened by the board of directors,  either at its  discretion or
upon a demand of any two directors or 25% of the directors,  whichever is lower,
or of one or more  shareholders  holding  in the  aggregate  at  least 5% of our
issued capital. An extraordinary meeting must be held not more than 35 days from
the publication date of the announcement of the meeting.

         LIMITATIONS ON THE RIGHTS TO OWN SECURITIES

         Our  Memorandum  and articles of association do not restrict in any way
the ownership of our shares by nonresidents of Israel and neither the Memorandum
of Association nor Israeli law restricts the voting rights of  non-residents  of
Israel,  except that under  Israeli  law, any transfer or issue of shares of the
Company  to a  resident  of a  country  under  a state  of war  with  Israel  is
prohibited and shall have no effect,  unless  authorized by the Israeli Minister
of Finance.



                                      -70-
<PAGE>

         FIDUCIARY DUTY AND DUTY OF CARE OF AN OFFICE HOLDER

         The  Companies  Law codifies the duties which an office  holder owes to
the  company.  These duties  consist of a fiduciary  duty, a duty to act in good
faith and in the best  interests  of the company and a duty of care.  An "Office
Holder" is defined in the Companies Law as a director,  general  manager,  chief
executive officer,  executive vice president,  vice president,  any other person
assuming the  responsibilities  of any of the foregoing positions without regard
to such person's  title and other managers  directly  subordinate to the general
manager. The Office Holder's duties to the company include:

         o    the  avoidance  of any  conflict  of  interest  between the Office
              Holder's  position  with the  company  and any other  position  he
              fulfills or with his personal affairs;

         o    the avoidance of any competition with the company;

         o    the  avoidance  of  exploiting  any  of  the  company's   business
              opportunities  in  order to gain a personal  advantage for himself
              or for others; and

         o    the disclosure to the company of any information and documentation
              relating to the company's  affairs  obtained by the officer due to
              his position with the company.

         The Companies Law requires that an Office Holder  promptly  disclose to
the company any personal interest that he or she may have, including all related
material  information  known to him or her, in  connection  with any existing or
proposed  transaction by the company.  The disclosure must be made without delay
and not later than the first board of directors meeting at which the transaction
is first discussed.

         APPROVAL OF RELATED PARTY TRANSACTIONS

         Generally,  under the Companies Law,  engagement terms of directors and
of directors  fulfilling other offices in the company including (i) the grant of
an  exemption  from  liability  for  damages  sustained  due to a breach  by the
directors' of their duty of care, (ii) directors' and officers' insurance, (iii)
a prospective  undertaking to indemnify such  directors,  and (iv) a retroactive
indemnification,  require  the  approval  of the audit  committee,  the board of
directors  and  the  majority  vote  of the  shareholders  of the  company.  The
Companies  Law also requires  that the  compensation  and terms of employment of
Office Holders or of employees of the company who hold a controlling interest in
a company must be approved by the audit  committee,  the board of directors  and
the majority vote of the  shareholders  at general  meetings,  provided that (i)
such majority vote at the shareholders  meeting shall include at least one third
(1/3) of the total  votes of  shareholders  having no  personal  interest in the
transaction,  present at the meeting in person or by proxy (excluding abstaining
votes);  or (ii) the total number of votes of  shareholders  mentioned in clause
(i) above who voted against such transaction does not exceed one percent (1%) of
the total voting rights in the company.

         The  Companies  Law  requires  that an Office  Holder,  or  controlling
shareholder,  promptly disclose any direct or indirect personal interest that he
or any of his affiliates may have, and all related material information known to
him, in connection with any existing or proposed "extraordinary  transaction" by
the company. If the Office Holder complies with such disclosure requirements and
the transaction is not  prejudicial to the best interests of the company,  then,
unless the articles of association of the company provide  otherwise,  the board
of directors of a company may approve the  transaction  in  accordance  with the
provisions of such company's  articles of association.  Under the Companies Law,
if the transaction is an "extraordinary  transaction",  then it must be approved
by the  company's  audit  committee,  its board of  directors  and,  in  certain
circumstances,  the shareholders of the company. An "extraordinary  transaction"
is defined in the Companies Law as a transaction  not in the ordinary  course of
business,  a transaction  that is not on market terms or a  transaction  that is
likely to have a  material  impact  on the  company's  profitability,  assets or
liability.



                                      -71-
<PAGE>

         In most  circumstances,  the Companies Law restricts Office Holders who
have a personal  interest in a matter  which is  considered  at a meeting of the
board of directors or the audit  committee  from being  present at such meeting,
participating in the discussions or voting on any such matter.

         For information  concerning the direct and indirect personal  interests
of  certain  of  our  Office  Holders  and  principal  shareholders  in  certain
transactions,  see "Item 7 - Major Shareholders and Related Party Transactions -
Major Shareholders".

         The Companies Law contains the same disclosure  requirements applicable
to  persons  having  control  of a public  company  as was  required  under  the
Companies  Ordinance (which preceded the Companies Law). In addition,  under the
Companies  Law,  "extraordinary  transactions"  between a public  company  and a
controlling  shareholder  of  the  company,  extraordinary  transactions  of the
company  with a third party in which a  controlling  shareholder  has a personal
interest and an  engagement of a public  company with a controlling  shareholder
regarding employment terms, all require the approval of the audit committee, the
board of directors and the shareholders.

         DUTY OF A SHAREHOLDER

         Under the Companies  Law, a  shareholder,  in exercising his rights and
fulfilling his obligations to the company and the other  shareholders,  must act
in good faith and in a customary  manner and refrain from improperly  exploiting
his power in the company,  including when voting at general or class meetings of
shareholders  on: (a) any  amendment  to the  articles  of  association;  (b) an
increase of the company's  authorized  share capital;  (c) a merger;  or (d) the
approval of related party transactions. In addition, a shareholder shall refrain
from prejudicing the rights of other shareholders.  The laws governing breach of
contracts  apply,  with  necessary  modifications,  to a  breach  of  the  above
obligations. Furthermore, any controlling shareholder, any shareholder who knows
that he possesses power to determine the outcome of the shareholders'  vote at a
general or a class meeting, and any shareholder that, pursuant to the provisions
of the  articles  of  association,  has the  power to  appoint  or  prevent  the
appointment  of an Office  Holder in the  company or  possesses  any other power
towards the company,  is under a duty to act in fairness towards the company.  A
breach by any such shareholder of this duty is treated  similarly to a breach of
a fiduciary duty of an Office Holder, with the applicable changes. The Companies
Law does not detail the substance of this duty.

         EXEMPTION, INSURANCE AND INDEMNIFICATION OF DIRECTORS AND OFFICERS

         Our  articles  of  association  provide  that,  to the  fullest  extent
permitted by law:

         o    we may  prospectively  exempt  any  officer  of the  Company  from
              liability,  in all or in  part,  for  damages  sustained  due to a
              breach  by the  officer  of  such  officer's  duty  of care to the
              Company.

         o    we may obtain an insurance policy providing directors and officers
              insurance for Office Holders in respect of liabilities incurred by
              them as a result of the  breach of their  duty of care to us or to
              another  person,  or as a result of the breach of their  fiduciary
              duty to us, to the  extent  that they  acted in good faith and had
              reasonable grounds to believe that the act would not prejudice us,
              or for  monetary  liabilities  imposed on them in favor of a third
              party as a result of an act or omission  related to their services
              as Office  Holders,  as well as for any other  event in respect of
              which an insurance of an officer is and/or may be permitted.

         o    we may  prospectively or retroactively  indemnify an Office Holder
              in connection  with his  activities as an Office  Holder,  for (i)
              monetary  liability  imposed upon such officer in favor of a third
              party by a judgment,  including a settlement or arbitration  award
              approved by court; (ii) reasonable litigation expenses,  including
              attorney's  fees,  incurred in an action brought against him by us
              or on our behalf or by a third party;  (iii) liabilities  incurred
              as a result of a criminal charge from which he was acquitted; (iv)
              a  criminal  charge in which he is  convicted  of an  offense  not
              requiring the proof of criminal intent; and (v) other liability or
              expense  for which it is or may be  permissible  to  indemnify  an
              officer;



                                      -72-
<PAGE>

              provided,    however,   that   the   prospective   indemnification
              undertaking  is limited to certain  events  that in the opinion of
              the  board  of  directors  are   foreseeable   at  the  time  such
              undertaking  is issued and limited to an amount which the board of
              directors determines is reasonable under the circumstances.

         Pursuant to our articles of association,  the aggregate indemnification
amount paid to an officer of the Company pursuant to prospective  undertaking to
indemnify shall not exceed the lower of (i) 25% of the  shareholders'  equity of
the  Company  as  of  the  date  of  actual   payment  by  the  Company  of  the
indemnification  amount (as set forth in the Company's most recent  consolidated
financial  statements prior to such payment);  and (ii) $50 million in excess of
any amount paid (if paid) by insurance  companies pursuant to insurance policies
maintained by the Company, from time to time, with respect to matters covered by
such indemnification.

         In  addition,   we  may   prospectively   undertake  to  indemnify  and
accordingly  issue a  prospective  indemnification  undertaking  in favor of any
person,  including an officer of the Company who  officiates  or  officiated  on
behalf or at the  request of the  Company as a  director  of another  company of
which the Company is either  directly or indirectly a shareholder or in which it
has any other interest whatsoever ("Director of the Other Company") with respect
to a liability  or expense as set forth  above,  which may be imposed  upon such
person as a result of an act  performed by such person in his/her  capacity as a
Director of the Other  Company,  provided  that such  undertaking  is limited to
events that in the opinion of the board of directors are foreseeable at the time
of the issue of the undertaking  and is limited to the amount  determined by the
board of directors as reasonable under the circumstances.

         We may also retroactively  indemnify a Director of the Other Company in
respect of liability  or expense as set forth  above,  imposed upon him/her as a
result of an act  performed by him/her in his/her  capacity as a Director of the
Other Company.

         Further more, we may retroactively indemnify an employee of the Company
who is not an officer of the Company in respect of liability or expense incurred
by such  employee or which such  employee is obligated to pay by court order due
to a bona fide act preformed by such employee in such employee's  capacity as an
employee of the  Company,  other than as a result of a criminal  charge in which
such employee was convicted of an offence requiring proof of criminal intent and
the judgment is not appealable.

         We may also prospectively indemnify and accordingly issue a prospective
indemnification undertaking in favor of an employee of the Company who is not an
officer of the  Company  and to  retroactively  indemnify  any  employee  of the
Company with respect to any monetary  liability to be imposed upon such employee
in favor of a third party in respect of an act  performed  in good faith by such
employee in his or her capacity as an employee of the Company.

         The Companies Law,  however,  prohibits us from  indemnifying an Office
Holder for entering into an insurance  contract which would provide coverage for
liability  incurred by such Office  Holder,  and from exempting an Office Holder
from  liability  towards  us,  as a result  of the  following:  (a) a breach  of
fiduciary duty, except for a breach of fiduciary duty to us while acting in good
faith and having  reasonable  cause to assume that such act would not  prejudice
our interests;  (b) a willful or reckless  breach of the duty of care; or (c) an
act done  with the  intent  to  unlawfully  realize a  personal  gain,  and also
provides  that a company may  undertake to indemnify an Office Holder in respect
of future acts,  provided such undertaking is limited to certain types of events
which,  in the opinion of the company's  board of directors,  are foreseeable at
the time of the  undertaking,  and are  limited to an amount  which the board of
directors has determined as being reasonable under the circumstances.

         At the general  meeting of our  shareholders  held on October 18, 2001,
our  shareholders   approved  insurance  policies  covering  our  directors  and
officers,  including  directors or officers of the Company's  subsidiaries.  The
shareholders  also authorized the Company to prospectively  exempt our directors
and officers and accordingly  issue prospective  indemnification  undertaking in
favor of our directors and officers pursuant to our articles of association.



                                      -73-
<PAGE>

         ANTI-TAKEOVER PROVISIONS AND ACQUISITIONS UNDER ISRAELI LAW

         Pursuant to the Companies  Law, if following any  acquisition of shares
of a public company or of a class of shares of a public  company,  the purchaser
holds 90% or more of the  company's  shares or 90% of any class of the company's
shares,  then the  purchaser  must make a tender offer for all of the  remaining
shares  or the  particular  class of shares of the  company.  In the event  that
holders of 5% or more of the shares  have not  responded  favorably  to a tender
offer,  the offeror may not purchase  more than 90% of that class of shares.  In
the event that holders of less than 5% of either the company's outstanding share
capital or of any class of shares have not tendered  their  shares,  then all of
the company's  shares that were not tendered will be  transferred to the offeror
by way of a compulsory  sale of such shares.  Where the offer is made for all of
the company's shares or for all shares of a class of securities of such company,
then the company will become a privately held company.

         At the request of an offeree of a tender offer which has favorably been
accepted,  which  request  was  submitted  to a competent  court,  the court may
determine  that the  consideration  for the acquired  shares  purchase under the
tender  offer,  was lower than their fair value and compel the offeror to pay to
the  offerees  the fair value of the  shares.  It should also be noted that such
application to the courts may be filed as a class action.

         Furthermore,  the  Companies  Law  provides  that  for  as  long  as  a
shareholder  in a publicly  held  company  holds more than 90% of the  company's
shares  or of a class  of  shares,  such  shareholder  shall be  precluded  from
purchasing any additional shares.

         The  Companies Law also  provides  that an  acquisition  of shares in a
public  company  must be made by means of a tender  offer if as a result  of the
acquisition  the  purchaser  would  become a holder of 25% or more of the voting
rights in the  company.  This rule does not apply if there  already  is  another
holder  of 25% or more of the  voting  rights  in the  company.  Similarly,  the
Companies Law provides that an acquisition of shares in a public company must be
made by means of a tender offer if as a result of the  acquisition the purchaser
would  become the holder of more than 45% of the voting  rights in the  company.
This rule does not apply if  another  party  already  holds more than 50% of the
voting rights in the company.

         Regulations  promulgated  under the  Companies  Law provide  that these
tender offer  requirements do not apply to companies whose shares are listed for
trading on a stock exchange  outside of Israel only if, according to the laws of
the  jurisdiction  where its shares are traded,  there is either a limitation on
the  acquisition  of a specified  percentage  of control in the company,  or the
acquisition of a specified  percentage of control requires the purchaser to also
make a tender offer to the public.

         CHANGES IN OUR CAPITAL

         Changes in our capital are subject to the approval of the  shareholders
at a general  meeting by a special  majority of 75% of the votes of shareholders
participating and voting at such meeting.

MATERIAL CONTRACTS

          1. Agreement  between CDPM and SLS for the  completion of the works at
the entertainment and commercial center in the Herzlia Marina, Israel. See "Item
4 - Principal  Capital  Expenditures and  Divestitutes  Currently in Progress or
Planned - Commercial and Entertainment Center".

          2. Agreement for the sale of the Company's sub-assembly  manufacturing
assets in  Ma'alot.  See "Item 4-  Information  on the Company -  Highlights  of
2002".

EXCHANGE CONTROLS

         In 1998,  the  government of Israel  promulgated a general permit under
the Israeli Currency Control Law. Pursuant so such general permit  substantially
all transactions in foreign currency are permitted.



                                      -74-
<PAGE>

         Our  memorandum  and articles of association do not restrict in any way
the  ownership  of the shares by  non-residents  and neither the  memorandum  of
association nor Israeli law restricts the voting rights of non-residents.

TAXATION

         Following is a  discussion  of certain tax laws that may be material to
our  shareholders,  all as in  effect as of the date of this  report  and all of
which is subject to changes, possibly on a retroactive basis, to the extent that
such laws are still subject to judicial or administrative  interpretation in the
future. This discussion is not intended,  and should not be construed,  as legal
or professional tax advice and does not cover all possible tax considerations.

         WE ENCOURAGE  EACH  INVESTOR TO CONSULT WITH HIS OR HER OWN TAX ADVISOR
AS TO THE  PARTICULAR  TAX  CONSEQUENCES  TO  SUCH  INVESTOR  OF  THE  PURCHASE,
OWNERSHIP  AND  DISPOSITION  OF OUR ORDINARY  SHARES,  INCLUDING  THE EFFECTS OF
APPLICABLE  ISRAELI,  U.S.  FEDERAL,  STATE, AND LOCAL, AND FOREIGN TAX LAWS AND
POSSIBLE CHANGES IN SUCH TAX LAWS.

         TAXATION IN ISRAEL

         In general,  Israeli  companies are currently subject to company tax at
the rate of 36% of taxable income.

         TAXATION UNDER INFLATIONARY CONDITIONS

         The Income Tax Law (Inflationary Adjustments), 1985, (the "Inflationary
Adjustments Law"), represents an attempt to overcome the problems presented to a
traditional  tax  system  by  an  economy   undergoing  rapid   inflation.   The
Inflationary Adjustments Law is characterized by a high degree of complexity and
its material features are the following:

         (a) A special tax  adjustment  for the  preservation  of equity whereby
certain corporate assets are classified  broadly into fixed assets and non-fixed
assets.  Where a  corporation's  equity,  as  defined in such law,  exceeds  the
depreciated  cost of fixed assets,  a tax deduction which takes into account the
effect of the annual  inflationary change on such excess is allowed (up to a cap
of 70% of  taxable  income in any  single  tax  year,  with the  unused  portion
permitted to be carried forward on a linked basis).  If the depreciated  cost of
fixed assets exceeds a corporation's  equity, then such excess multiplied by the
annual inflation change is added to taxable income.

         (b) Depreciation  deductions on fixed assets and losses carried forward
are adjusted for inflation  based on the increase in the Israeli  Consumer Price
Index.

         TAX BENEFIT UNDER THE LAW FOR THE ENCOURAGEMENT OF CAPITAL INVESTMENTS,
         1959

         Certain  of the  facilities  of  Elscint  have been  granted  "Approved
Enterprise"  status under the Law for the Encouragement of Capital  Investments,
1959, as amended (the  "Investment  Law").  The  Investment  Law provides that a
capital  investment in eligible  facilities may, upon  application to the Israel
Investment Center, be designated as an Approved Enterprise.  Each certificate of
approval for an Approved  Enterprise  relates to a specific  investment  program
delineated  both by its financial  scope,  including its capital sources and its
physical  characteristics,  e.g.,  the  equipment to be  purchased  and utilized
pursuant to the program.  The tax benefits  derived from any such certificate of
approval  relate only to taxable income  attributable  to the specific  Approved
Enterprise.



                                      -75-
<PAGE>

         Taxable income of a company derived from an Approved  Enterprise status
is subject to company tax at the rate of up to 25% for the "Benefit  Period":  a
period of seven years  commencing  in the year in which the Approved  Enterprise
first  generated  taxable income  (limited to twelve years from  commencement of
production  or  fourteen  years  from the  date of  approval,  whichever  occurs
earlier) and, under certain  circumstances (as described below),  extending to a
maximum  of ten years  from the  commencement  date.  In the event a company  is
operating under more than one approval or that its capital  investments are only
partly  approved,  such  company will be taxed at a rate that is the result of a
weighted combination of the various applicable rates.

         A company that qualifies as a "Foreign  Investors' Company" is entitled
to an additional  period of three years after the seven years  mentioned  above,
and to  further  reductions  in the tax rate  normally  applicable  to  Approved
Enterprises.  Subject to certain conditions, a "Foreign Investors' Company" is a
company that has more than 25% of its combined shareholders' investment in share
capital (in terms of rights to profits, voting and the appointment of directors)
and in long term  shareholders'  loans made  originally  by persons  who are not
residents  of  Israel.  The  percentage  allotted  to  non-residents  of  Israel
shareholders (directly or indirectly) for any tax year will be determined by the
lowest percentage of any of the above rights held by such  non-residents  during
that year.  Such a company  will pay  company  tax on the income of the  company
derived from an Approved  Enterprise  at reduced  rates  (ranging  from 10%-25%,
depending on the  percentage  of foreign  shareholders  investment  in the share
capital). With respect to an Approved Enterprise approved after January 1, 1997,
such income will be exempted during the first two years for an extended ten-year
(rather than the otherwise applicable  seven-year) period and is exempt from any
other tax on the income from its Approved Enterprise.

         In addition,  a company owning an Approved  Enterprise  status approved
after April 1, 1986 (or prior thereto provided no government grants or loans had
previously  been granted  regarding such  enterprise)  may elect (as we have) to
forego certain government grants extended to Approved  Enterprises in return for
an "alternative  package" of tax benefits.  Under such  alternative  package,  a
company's  undistributed  income  derived  from an Approved  Enterprise  will be
exempt from company tax for a period of between two and ten years,  depending on
the  geographic  location of the Approved  Enterprise  within  Israel,  and such
company will be eligible for the tax benefits  under the  Investment Law for the
remainder of the Benefit Period.

         A company that distributed  dividends out of income that was tax exempt
according to the "Investment Law" will be subject to company tax in the year the
dividend is  distributed  in respect of the amount  distributed at the rate that
would have been applicable had the company not elected the  alternative  package
(generally 25%). The dividend  recipient is taxed at the reduced rate applicable
to dividends from Approved Enterprises (15% as compared to 25% for individuals),
if the  dividend  is  distributed  during the tax  exemption  period or within a
specified period. This tax must be withheld at source by the company.

         Subject  to  certain  provisions   concerning  income  subject  to  the
alternative  package  of  tax  benefits,  all  dividends  are  considered  to be
attributable  to the entire  enterprise and the effective tax rate is the result
of a weighted combination of the various applicable tax rates.

         Grants and certain other incentives received by a company in accordance
with the  Investment  Law  remain  subject to final  ratification  by the Israel
Investment  Center and final  determination  by the Israeli Tax Authority,  such
ratification and  determination  being conditional upon fulfillment of all terms
of the approved program.

         The  benefits  granted  under these  programs are  contingent  upon the
fulfillment of the conditions  stipulated in the law, and the regulations  there
under and the approval  documents based on which the investment had been carried
out. In the event of failure to comply with these conditions the benefits may



                                      -76-
<PAGE>

be  cancelled,  and the Company may be require to refund the amount of benefits,
previously  received  in  whole  or  in  part,  with  the  addition  of  linkage
differences and interest.

         A  distribution  of  cash  dividends  out of  tax-exempt  income  of an
Approved  Enterprise  would  impose on the Company an  additional  tax of 25% in
respect of the amount  distributed.  The said tax addition has not been included
in these  financial  statements  due to the  Group's  policy  to avoid  dividend
distribution which may result in additional tax to the Group.

         The period of tax  benefits  under the  Investment  Law with respect to
Elscint expired upon the sale of the Ma'alot  facility,  effective  December 31,
2002.

         TAX BENEFIT UNDER THE LAW FOR THE ENCOURAGEMENT OF INDUSTRIES  (TAXES),
1969 (THE "INDUSTRY ENCOURAGEMENT LAW")

         Under the  Industry  Encouragement  Law,  an  "Industrial  Company"  is
defined  as a company  incorporated  in  Israel,  at least 90% of the  income of
which, in any tax year, as determined in Israeli  currency  (exclusive of income
from government loans, capital gains,  interest and dividends),  is derived from
an "Industrial Enterprise" owned by it. An "Industrial Enterprise" is defined as
an enterprise whose major activity in a given tax year is industrial  production
activity.  Eligibility for benefits under the Industry  Encouragement Law is not
subject to receipt of prior approval from any governmental authority.

         Under  regulations  existing  on  December  31,  2002,  as  long as our
ordinary shares were listed on the NYSE (or on another stock exchange recognized
by the Israeli  Ministry of Finance) and the Company  continued to qualify as an
Industrial  Company under the Investment  Law, gains on the sale of our ordinary
shares generally were exempt from Israeli capital gains tax.

         As of the date of the tax  reform  (see  "Reform  of Taxes on Income in
Israel" below) effective January 1, 2003, this tax exemption was cancelled and a
15% tax was applied on capital gains of Israeli residents.

         This exemption,  and the 15% tax imposed due to the tax reform,  do not
apply,  however, to a shareholder whose taxable income is determined pursuant to
the  Inflationary  Adjustments  Law, nor to a company or individual  whose gains
from selling or otherwise  disposing of our ordinary shares are deemed "Business
Income" (in which case,  such gains will be subject to  corporate  tax or income
tax, respectively).

         CAPITAL GAINS TAX

         Israeli law imposes a capital  gains tax on the sale of capital  assets
by both residents and non-residents of Israel. The law distinguishes between the
"Real Gain" and the  "Inflationary  Surplus." The Real Gain is the excess of the
total capital gain over the Inflationary  Surplus,  computed on the basis of the
increase in the Israeli  Consumer  Price Index  between the date of purchase and
the date of sale. The Inflationary  Surplus is tax exempt,  except for inflation
surplus  accumulated until December 31, 1993 which is taxed at a rate of 10% for
residents of Israel (reduced to no tax for non-residents if calculated according
to the exchange rate of the dollar  instead of the Israeli CPI),  while the Real
Gain is added to  ordinary  income  which  is  taxed  at the  ordinary  rate for
individuals  and at 36% for companies (as for capital gains tax after January 1,
2003, see "Reform of taxes on income in Israel" below.)

         Pursuant to the Convention  between the government of the United States
of America and the  government  of Israel  with  Respect to Taxes on Income (the
"U.S.-Israel  Tax Treaty"),  the sale,  exchange or  disposition  of shares by a
person who  qualifies as a resident of the United  States  within the meaning of
the U.S.-Israel Tax Treaty and who is entitled to claim the benefits afforded to
such resident by the U.S.-



                                      -77-
<PAGE>

Israel Tax Treaty ("Treaty U.S.  Resident"),  will not be subject to the Israeli
capital  gains  tax  unless  such  Treaty  U.S.  Resident  holds,   directly  or
indirectly,  shares  representing 10% or more of the voting power of the company
during  any  part of the  12-month  period  preceding  such  sale,  exchange  or
disposition. A sale, exchange or disposition of shares by a Treaty U.S. Resident
who holds, directly or indirectly, shares representing 10% or more of the voting
power of the company at any time during such preceding  12-month period would be
subject to such Israeli  tax;  however,  under the  US-Israel  Tax Treaty,  such
Treaty U.S. Resident would be permitted to claim a credit for such taxes against
the U.S. income tax imposed with respect to such sale,  exchange or disposition,
subject to the limitations applicable to foreign tax credits.

         TAXATION OF NON-RESIDENTS

         Non-residents  of Israel are  subject  to income tax on income  derived
from sources in Israel.  On  distributions  of dividends other than bonus shares
(stock dividends), income tax at the rate of 25% (15% for dividends generated by
an  "Approved  Enterprise")  is withheld at source,  unless a different  rate is
provided in a treaty between Israel and the shareholder's  country of residence.
The US-Israel Tax Treaty  provides for a maximum tax of 25% on dividends paid to
a Treaty U.S.  Resident  and for a rate of 12.5% on  dividends  paid to a United
States  corporation that holds 10% or more of the shares of the Israeli company,
or  15%  for  dividends  distributed  from  income  derived  from  an  "Approved
Enterprise".

         REFORM OF TAXES ON INCOME IN ISRAEL

         During  2002,  tax reform  legislation  was  enacted  with  effect from
January 1, 2003, which significantly changed the taxation basis of corporate and
individual  taxpayers from a territorial  basis to a worldwide  basis. As of the
effective  date, an Israeli  resident  taxpayer will be taxed on income produced
and derived  both in and out of Israel.  The main  provisions  of the tax reform
that may affect the Company are as follows:

         1. Changes in the method of taxation prevailing in Israel regarding the
revenues of foreign companies  controlled (over 10%) by Israeli residents,  most
of whose revenues are passive revenues,  as defined in the law, or most of whose
profits  result from passive  revenues,  the tax rate  applying to them does not
exceed 20%,  and over 50% of the means of control in them are held,  directly or
indirectly,  by Israeli residents ("C.F.C.").  In accordance with the provisions
of  the  law,  the   controlling   shareholder  in  such  companies  which  have
undistributed  profits,  as defined in the law,  will be deemed to have received
its proportional share in these profits as a dividend,  and income tax in Israel
of up to 25% will apply to them.

         2.  Dividend  whose source is revenues  produced or accrued  outside of
Israel and a dividend  whose  source is out of Israel will be taxed at a rate of
up to 25%.

         In addition,  the law sets forth provisions regarding amounts and rates
of tax, in those cases where tax was paid abroad on such revenues.

         3. As of January 1, 2003,  all income of an Israeli  resident,  even if
accrued or  produced  outside of Israel,  will be taxed.  Until the end of 2002,
Israeli  residents  were subject to taxation on certain  types of income only if
received for the first time in Israel.

         4. As of January 1, 2003,  the tax rate on capital gains from realizing
assets was reduced to 25%. The reduced rate will apply to assets  purchased  and
realized  as of January 1, 2003 and  thereafter.  The tax rate on capital  gains
derived  from  assets  purchased  prior to  January 1, 2003 and  realized  after
January 1, 2003 will be  calculated  by taking into  account part of the profits
relating to the period after that date, and up to the date of realization.



                                      -78-
<PAGE>

         HOLLAND

         1.       Corporate  tax  applicable  to companies  incorporated  in the
                  country - 34.5%.

         2.       Under the "Participation  Exemption", a dividend received by a
                  Dutch  company in respect of an  investment in shares of other
                  companies is exempt from  corporate tax in Holland.  A capital
                  gain  derived  upon  the  sale of the  shares  of an  investee
                  company would be exempt from tax,  subject to the  fulfillment
                  of the following conditions:

                  a.       The company holds at least 5% of the share capital of
the investee.

                  b.       The investing company and the investee are not
investment funds as defined by Dutch law.

                  c.       The investment is not held as inventory.

         Four additional criteria are required for an exemption in respect of an
investment in foreign companies:

         (1) The  profits  of the  investee  must be  taxed  in its  country  of
residence.

         (2) The  investment  is not  carried  out  within the  framework  of an
investment portfolio.

         (3) The investee is an active company.

         (4) A  subsidiary  acting  as the  financier  must be  active  and meet
additional conditions.

         Capital   losses   cannot  be  offset  unless  the  investee  had  been
liquidated, under certain conditions.

         ENGLAND

         1. With respect to a company incorporated in England:

                  (a) Operating income and capital gains would be subject to tax
rates ranging from 0% to 32.75%, subject to the level of profitability.

                  (b) Dividends received from a U.K. resident company are exempt
from tax.

                  (c) No tax credits are given for dividends distributed.

         2. With  respect to a company not  incorporated  in England that has an
investment activity in property in England:

                  (a) Net rental income from leasing  buildings in England would
be taxed at 22%.

                  (b) Capital gains are exempt from tax.

         BELGIUM

         The  corporate  tax   applicable  to  income  of   Belgian-incorporated
corporation is approximately 34%. Dividend paid out of such income is subject to
an  additional  tax  of  25%,  other  than  a  dividend  received  by  companies
incorporated  in Belgium or in the  European  Union,  whose  holding rate in the
Belgian company is at least 25%, subject to international tax treaties.



                                      -79-
<PAGE>


         HUNGARY

         The corporate tax rate applicable to income  (including  capital gains)
of  subsidiaries  incorporated  in Hungary is 18%.  Dividends  paid out of these
profits  are taxed at an  additional  rate of 20%,  subject  to the terms of the
relevant  treaty for the  prevention of double  taxation.  Losses from the third
year onward may be offset against taxable income for a period of five years. The
losses  incurred  during the first two years of operation may be carried forward
for an unlimited period of time.

         ROMANIA

         The corporate  income tax rate for resident  companies and non-resident
entities with  permanent  establishments  in Romania is generally  25%.  Capital
gains are  generally  treated as ordinary  business  income.  Dividends  paid to
resident and  non-resident  companies are subject to a final  withholding tax of
10%, unless reduced double taxation treaty rates apply for non-residents. Losses
may be offset against  taxable income for a period of five years from the period
they incurred.

         TAXATION IN THE U.S.

         This summary of certain U.S. federal income tax laws applies to persons
that are generally  subject to U.S. federal income taxation on world-wide income
basis (collectively,  "U.S.  Persons").  However,  this summary does not address
U.S.  federal  income tax  considerations  that may be relevant to certain  U.S.
Persons that are subject to special  treatment under the federal income tax law,
such as tax-exempt  organizations,  financial  institutions,  non-U.S.  persons,
insurance companies, broker-dealers or certain other persons). In addition, this
summary does not contain any specific tax  discussion  applicable  to particular
U.S. Persons.

         PASSIVE FOREIGN INVESTMENT COMPANIES

         In general, a foreign  corporation will be a passive foreign investment
company  ("PFIC"),  if either  (i) 75% or more of its gross  income in a taxable
year is passive income or (ii) 50% or more of the average value of its assets in
a taxable year are held for the production of, or produce,  passive income. If a
corporation  is a PFIC,  a U.S.  shareholder,  in the  absence of an election to
treat the corporation as a "qualified electing fund" or a "mark to market", will
be  required  to  report  any  gain on the  disposition  of the  shares  of such
corporation  as ordinary  income rather than capital gain and to compute the tax
liability on such gain, as well as on certain dividends and other distributions,
at the time of such  disposition  or  distribution,  as if the  income  had been
earned ratably over each day in the U.S.  shareholder's holding period, and such
U.S.  shareholder  automatically  will be subject to the highest ordinary income
tax rate for each  taxable  year  that the  corporation  was a PFIC in which the
items were  treated  as having  been  earned  regardless  of the rate  otherwise
applicable to such shareholder during such taxable years. In addition, the taxes
attributable  to these prior  years will be  increased  by an  interest  factor.
Additionally,  if a  corporation  is a  PFIC,  a  non-electing  shareholder  who
acquires  shares in such  corporation  from a decedent  generally  is denied the
normally  available step-up in the tax basis of such shares to fair market value
at the date of death and instead will hold such shares with a tax basis equal to
the decedent's  basis, of lower than the fair market value.

          We believe that Elscint was not a PFIC for the year ended December 31,
2002 or prior years.  However,  we emphasize that there can be no assurance that
the Internal  Revenue  Service will not determine  that,  under the  methodology
currently used by Elscint or a possible alternative capitalization  methodology,
Elscint was a PFIC for its taxable year ended December 31, 2002 or prior years.

         No final  determination  has been made regarding any possible effect of
the sale of the Company's  sub-assembly  manufacturing facility in Ma'alot as of
December  31, 2002 on the current  status of the  Company (as  described  in the
immediately  preceding  paragraph).   However,  the  Company  believes  that  no
significant impact on such status will result from this transaction.

         WE STRONGLY ADVISE THAT YOU CONSULT WITH YOUR TAX ADVISORS IN REGARD TO
TAX ISSUES,  INCLUDING ISSUES RELATING TO PFIC, WHICH MAY AFFECT YOUR INVESTMENT
IN ELSCINT.



                                      -80-
<PAGE>


         USE OF THE COMPANY'S NET OPERATING LOSSES

         A complex set of rules exists under the U.S.  Internal  Revenue Code of
1986,  as amended (the "Code")  limiting the potential  utilization  of U.S. net
operating loss and tax credit  carry-forwards  in periods  following a corporate
"ownership  change".  In  general,  for U.S.  federal  income tax  purposes,  an
ownership  change  is  deemed  to  occur  if the  percentage  of stock of a loss
corporation owned (actually,  constructively and, in some cases,  deemed) by one
or more "5%  shareholders"  has increased by more than 50 percentage points over
the lowest  percentage of such stock owned during a three-year  testing  period.
Subsequent  stock  ownership  changes,  or  changes  in  relevant  tax  laws and
interpretations,  may result in an ownership  change at some date in the future.
If the  change in  control  of EMI in 1999 is  considered  an  ownership  change
according to the U.S. Internal Revenue Code, our ability to utilize our U.S. net
operating loss and tax attribute carry-forwards could be significantly limited.
While such limitation will not have a direct impact on our shareholders who are
U.S. Persons, it may affect the amounts of income available for distribution to
the shareholders.

         TAXATION OF DIVIDENDS PAID TO U.S. SHAREHOLDERS

         Under the recently  enacted  amendments to the Code,  dividends paid to
individual  U.S.  Persons  with  respect  to  shares  of  a  qualified   foreign
corporation  are  taxed at a  capital  gains tax rate  (currently,  15%,  with a
transitional rate available for dividends paid in 2003),  which is substantially
lower than the  ordinary  income  tax rates.  A  qualified  foreign  corporation
includes a  corporation  the shares of which (with respect to which the dividend
is paid) are readily tradable on an established  U.S.  securities  market.  As a
result,  dividends  paid with respect to the  ordinary  shares of the Company in
2003  should  be  taxable  to the U.S.  Persons  who  hold  such  shares  at the
transitional  tax rate,  and  dividends  paid  thereafter  with  respect  to the
ordinary  shares  (provided such shares  continue to be  publicly-traded  in the
United  States)  should be eligible  for the 15% tax rate  (during the time such
rate remains in effect).

DOCUMENTS ON DISPLAY

         Elscint is subject to the  informational  requirements of the 1934 Act.
In  accordance  with  these  requirements,   Elscint  files  reports  and  other
information with the SEC. These materials,  including this Annual Report and the
exhibits hereto,  may be inspected and copied at the SEC's Public Reference Room
at 450 Fifth Street, NW, Washington, D.C. 20549 and at the SEC's regional office
at 500 West Madison Street,  Suite 1400, Chicago,  Illinois 60661. Copies of the
materials may be obtained from the Public Reference Room of the SEC at 450 Fifth
Street,  NW,  Washington,  D.C. 20549 at prescribed rates. The public may obtain
information  on the operation of the SEC's Public  Reference Room by calling the
SEC in the United  States at  1-800-SEC-0330.  In  addition,  material  filed by
Elscint  can be  inspected  at the offices of the NYSE at 20 Broad  Street,  New
York, New York 10005.

         ITEM 11. -- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

         Elscint on a  consolidated  basis  analysis,  in its  normal  course of
business, is exposed to the following market risks:

         1. EXCHANGE RATE EXPOSURE

         (a) Hotel Division:  The main transactions and balances of companies in
our hotel division,  which are measured as autonomous entities,  are denominated
or linked to the  functional  currency of each company.  As of December 31, 2002
and for the year then ended,  the hotel  division  did not have any  significant
exchange  rate  exposure  in  the  hotel  division  except  for  the  division's
operations in Romania.

         (b) General Monetary Assets and Liabilities: The functional currency of
the Company is the NIS. The Company has monetary assets and monetary liabilities
in  substantial  amounts,  denominated  or  linked  to other  currencies  and is
therefore  exposed  to a  substantial  devaluation  of the  NIS,  especially  in
relation  to the U.S.  dollar and the Euro.  Further  details  of the  Company's
foreign  currency  exposure as of December  31,  2002,  are set forth in Table I
below.  The Company does not actively hedge against  fluctuations  in the NIS in
relation to these currencies.

         For the rate of exchange between the relevant main currencies, see note
2X to the financial statements included in item 18 below.

         2. EXPOSURE TO THE NET INVESTMENT VALUE OF FOREIGN ENTITIES

         The Company's subsidiaries that operate outside of Israel and which are
autonomous entities prepare their financial  statements in the currency of their
country of residence,  which is also their functional  currency.  Such financial
statements  were  translated  into the  functional  currency  of  their  holding
company, according to the exchange rate prevailing as at the balance sheet date.
Differences  between (i) the holding  companies'  investments  in the  investees
(including  monetary  balances  with a



                                      -81-
<PAGE>

nature of investments), based on their functional currency, and (ii) the holding
companies' share in the shareholders'  equity of these investees,  determined in
their  local  currency  (translated  to the  functional  currency of the holding
companies), are charged directly to the Company's shareholders' equity.

         The Company's  exposure to  fluctuations  in exchange  rates of foreign
currencies,  as mentioned  above, in relation to the functional  currency of the
holding  companies is reflected  only by the value of the net  investment in the
autonomous entities (capital and loans with a nature of investments).

         Further  details  of the  Company's  foreign  currency  exposure  as of
December 31, 2002, regarding  investments in foreign entities,  are set forth in
Table I below.  The Company does not actively  hedge against the exposure to the
net investment value of foreign  entities,  except for certain  investments that
are financed by bank loans  determined  in the same  currency of the  functional
currency of the investee.

         A  decrease/increase   in  the  value  of  foreign  currencies  of  the
autonomous  entities in relation to the holding companies'  functional  currency
(other than where the investment was financed in the functional  currency of the
autonomous  entity)  may  therefore  have  a  negative/positive  impact  on  the
Company's shareholders equity.

         In addition,  the Company's exposure to the foregoing  fluctuations has
an impact  on the  extent  of the  assets,  liabilities  and  operations  of the
autonomous companies, as reflected in the Company's financial statements, and on
the date to date and  period to period  comparison  of the  Company's  financial
statements.

         For the rate of exchange between the relevant main currencies, see note
2X to the financial statements included in item 18 below.

         3.       RATE OF INFLATION

         Exposure to  fluctuations in the rates of inflation in the countries in
which the Company and/or its subsidiaries  operates: The group companies prepare
their  financial  statements in real terms,  so that  non-monetary  items (e.g.,
fixed assets and  inventory)  are  presented on the basis of cost as adjusted to
the change in the CPI of each country of  residence,  while  monetary  items are
presented  at their  nominal  value.  Therefore,  any rate of  inflation  with a
positive amount with respect to each reporting entity with an excess of monetary
liabilities (which have been assumed in order to finance the construction and/or
acquisition of non-monetary  assets,  mainly in the commercial and entertainment
center and the hotel  division) over monetary  assets,  has a positive impact on
the results of  operations  of the Company,  while any rate of inflation  with a
positive amount with respect to each reporting entity with an excess of monetary
assets over  liabilities,  has a negative impact on the results of operations of
the Company.

         The Company does not actively  hedge  against the  fluctuations  in the
rate of inflation.

         As mentioned in Note 2 to the financial  statements included in Item 18
below,  new accounting  standards were issued during 2001 and 2002 in respect of
(i) the termination of adjustments of financial statement for inflation and (ii)
the  effect of  changes  in foreign  currency  exchange  rates in effect,  which
standards will enter into force on January 1, 2004.  Management cannot assess at
this stage the impact of these  standards on the Company's  results of operation
in the periods commencing January 1, 2004. However, management believes that, in
some   circumstances,   the  results  of   operations  of  the  Company  may  be
substantially  affected by the  implementation  of the  foregoing  standards  in
comparison to the principles that will be in effect during 2003.

         Further  details about the Company's rate of inflation  exposure on net
monetary  assets/liabilities,  as at December 31, 2002, are set forth in Table I
below.

         As to the rate of inflation,  see Note 2X to the  financial  statements
included in Item 18 below.

         4.       INTEREST RATE RISKS

         The Company and its  subsidiaries  finance some of their  activities by
means of credit in  foreign  currencies  (mainly  in U.S.  dollar  and Euro) and
maintain their monetary assets in bank deposits (mainly,



                                      -82-
<PAGE>

in U.S.  dollars).  Part of the credit and the deposits are obtained or invested
at fixed  interest rate while the major part is provided at variable  rates (see
Table III below).  The changes in interest  rates in the  countries in which the
Company operates affect its results of operations and its future cash flows. The
Company does not actively hedge against the impact of the interest rate risks on
its net monetary assets/liabilities.

         5.       CREDIT RISKS

         Cash, cash  equivalents and bank deposits are maintained with reputable
banks.  In the hotel  division,  the  services  and sales are  rendered to large
numbers  of  customers,  and thus the  Company is not  significantly  exposed to
credit risks arising from dependence on any customer.

         6.       MARKETABLE SECURITIES

         As for composition of the short and long-term investment portfolio, see
Note 4 and  Note  7 to the  financial  statements  included  in  Item  18.  Such
investments are exposed to market-price  fluctuation,  with the Company affected
by fluctuation of the capital markets over which the Company has no control.

         7.       BIO-TECHNOLOGY INVESTMENTS

         As to exposures relating to bio-technology  investments,  see "Item 3 -
Risk Factors - Risks relating to our Bio-Technology investments."

         8.       FAIR VALUE OF FINANCIAL INSTRUMENTS

         Elscint's and its subsidiaries'  financial instruments include monetary
assets (cash and cash equivalents,  short and long-term deposits, trade accounts
receivables,  marketable  securities  as well as other  receivables  and current
assets) and monetary liabilities (short-term borrowings,  long-term liabilities,
trade accounts payables as well as payables and other current liabilities).  Due
to the nature of the financial  instruments  included in working capital,  their
fair values approximates those presented in the balance sheet.

         It is difficult to estimate the fair value of many  accounts as well as
notes  receivable  bearing  different  maturity  dates and interest rates in the
different  countries  in which the  Company  and its  subsidiaries  are  active.
Nevertheless,  management  estimates  that the fair value of these  accounts and
notes is not lower than their book value.

         The fair value of long term trade  accounts  receivable,  deposits  and
other long-term  liabilities is ordinarily  based on the present value of future
receipts and  disbursements,  discounted by the interest rate  applicable to the
Company's lending or borrowing  activities under similar terms as of the balance
sheet date,  and it is not  materially  different  than the one presented in the
financial statements.

         As  for  the  presentation  of  long-term  balances  not  under  market
conditions, see Note 2K to the financial statements included in Item 18.

         Assets that were included in long term  investments  with market values
that differ from their carrying amounts are as follows:

                                                 December 31, 2002
                                       ---------------------------------------
                                                 NIS (in millions)
                                       ---------------------------------------
                                        Carrying amount         Market value
                                       -------------------   -----------------

Permanent investment in  EMI's            41.1                  18.9
shares (*)
                                       ---------------------------------------
(*) see note 30B to the financial statements



                                      -83-
<PAGE>

TABLE I - FOREIGN CURRENCY RISKS

         The table below provides  information as at December 31, 2002 regarding
the  Company's  financial  assets  and  liabilities   (including   inter-company
balances) denominated or linked to foreign currencies (other than the functional
currency):

NIS (IN MILLIONS)

<TABLE>
<CAPTION>
                                                                                                                 RECONCI-
                                                                                                                 LIATION
                                                                  BRITISH                        ROMANIAN          FOR
                                                                   POUND                           LEI    OTHER  CONSOLI-
                              ADJUSTED ISRAELI SHEKELS (NIS)     STERLING             EURO        (ROL)    (2)    DATION    TOTAL
FUNCTIONAL CURRENCY (1)       ------------------------------     --------       ----------------- -----    ---    ------    -----
Linkage Currency(3)                                      Un            Un-                Un-      $
                               $    Euro      GB Pound  linked  Euro   linked   $ Pound   linked
                               -    ----      --------  ------  ----   ------   -------   ---      -
CURRENT ASSETS:
<S>                           <C>      <C>       <C>     <C>    <C>     <C>    <C>   <C>   <C>     <C>     <C>    <C>      <C>
Cash and cash equivalents      65       5         -       9      -       5      -     -     2       2       5       -       93
Short term deposits and
  investments                 156       -         -       -      -       1      -     -     1       -       -       -      158
Receivables and other
  current assets               1        -         -       9      -      13      -     1    13       -       4       -       41
                             ------- --------- -------- ------ ------- ------ ------ ---- ------ -------- ------ -------- -------
                              222       5         -      18      -      19      -     1    16       2       9       -      292
                             ------- --------- -------- ------ ------- ------ ------ ---- ------ -------- ------ -------- -------
LONG TERM INVESTMENTS AND
  RECEIVABLES:
Deposits, debentures, loans
  and receivables             262       -         -       3      -       -     24     -    18       -       1       -      308
Investments in investees and
  other companies:
Shares                         17     (259)       -      42      -       -      -    (38)   -       -      (4)     275      33
Loans (3)                     533      198       91       -      -       -     46    74    198      -       -     (1,140)   -
                             ------- --------- -------- ------ ------- ------ ------ ---- ------ -------- ------ -------- -------
                              812      (61)      91      45      -       -     70    36    216      -      (3)    (865)    341
                             ------- --------- -------- ------ ------- ------ ------ ---- ------ -------- ------ -------- -------
ASSETS RELATED TO
DISCONTINUING OPERATIONS      101       4         -       9      -       -      -     -     -       -       -       -      114
                             ------- --------- -------- ------ ------- ------ ------ ---- ------ -------- ------ -------- -------

TOTAL ASSETS                 1,135     (52)      91      72      -      19     70    37    232      2       6     (865)    747
                             ======= ========= ======== ====== ======= ====== ====== ==== ====== ======== ====== ======== =======

CURRENT LIABILITIES:
Short term borrowings (4)      49      174       79       9      -      83            -     4      133      1       -      532
Payables and other current
  liabilities                  7        1         -      32             35      -     -    23       -      12       -      110
                             ------- --------- -------- ------ ------- ------ ------ ---- ------ -------- ------ -------- -------
                               56      175       79      41             118     -     -    27      133     13       -      642
                             ------- --------- -------- ------ ------- ------ ------ ---- ------ -------- ------ -------- -------
LONG TERM LIABILITIES:
loans and other long term
  liabilities: (4)
Group companies                -        -         -       -     177     74     533   91    198     37      30     (1,140)   -
Others                        261       -         -       3      -      255     -     -    109      -      11       -      639
                             ------- --------- -------- ------ ------- ------ ------ ---- ------ -------- ------ -------- -------
                              261       -         -       3     177     329    533   91    307     37      41     (1,140)  639
                             ------- --------- -------- ------ ------- ------ ------ ---- ------ -------- ------ -------- -------
LIABILITIES RELATED TO
DISCONTINUING OPERATIONS       98       10        -       3      -       -      -     -     -       -       -       -      111
                             ------- --------- -------- ------ ------- ------ ------ ---- ------ -------- ------ -------- -------

TOTAL LIABILITIES             415      185       79      47     177     447    533   91    334     170     54     (1,140)  1392
                             ======= ========= ======== ====== ======= ====== ====== ==== ====== ======== ====== ======== =======

TOTAL ASSETS LESS TOTAL
  LIABILITIES (*)             720     (237)      12      25    (177)   (428)  (463)  (54) (102)   (168)   (48)     275    (645)
                             ======= ========= ======== ====== ======= ====== ====== ==== ====== ======== ====== ======== =======
</TABLE>

    Footnotes
    ---------

    (1)  Adjusted to the CPI in the state of residence.

    (2)  Includes balances of financial assets or financial liabilities that are
         denominated  or linked to other  currencies  which do not  exceed 5% of
         total financial  assets or financial  liabilities,  respectively  (on a
         consolidated basis).


                                      -84-
<PAGE>

    (3)  As  for  investments  in  investees  -  "linkage  currency"  means  the
         functional  currency  of each  investee.  As for loans  with  nature of
         investment - "linkage  currency"  means the  currency  that the loan is
         denominated or linked to.

    (4)  Loans linked to the U.S. dollar, the exchange rate fluctuations' impact
         of which is  capitalized to fixed assets (real estate which at December
         31,  2002 are under  construction)  during  their  construction  period
         (anticipated  completion  date  -  through  years  2003/2004),  are  as
         follows:  the NIS as the  functional  currency - NIS 280 millions;  the
         British Pound as the  functional  currency - NIS 11.3 million;  and the
         HUF  as  the  functional  currency  - NIS  15.1  million.  As  for  the
         differences  between Israeli and U.S. GAAP in respect of capitalization
         of  exchange  rate  differences  (in  real  term) - see  Note 33 to the
         financial statements included in Item 18 below.

    (5)  comprise as follows:

<TABLE>
<CAPTION>
                                                                                                                 RECONCI-
                                                                   BRITISH                       ROMANIAN          FOR
                                                                    POUND                          LEI    OTHER  CONSOLI-
                               ADJUSTED ISRAELI SHEKELS (NIS)      STERLING             EURO      (ROL)    (2)    DATION    TOTAL
FUNCTIONAL CURRENCY (1)       --------------------------------   ------------       ------------- -----    ---    ------    -----
Linkage Currency(3)                                      Un            Un-     $           Un-      $
-----------------------        $    Euro      GB Pound  linked   Euro  linked       Pound linked
                               -   ------     --------   --      ----  ---     -    ----- ------    -
<S>                            <C>    <C>       <C>      <C>   <C>      <C>    <C>   <C>  <C>     <C>     <C>        <C>     <C>
Net monetary items             170    (176)    (79)     (17)     -      (354)   24    1   (102)   (131)   (14)        -      (678)
Inter - company balances
  (loans with a nature of
  investment)                  533     198      91       -     (177)    (74)   (487) (17)   -     (37)    (30)        -        -
Investments in  investees'

  shares                       17     (259)      -       42      -        -     -    (38)   -       -      (4)       275      33

Total                          720    (237)     12       25    (177)    (428)  (463) (54) (102)   (168)   (48)       275     (645)


    (6) Exchange rates:

       FUNCTIONAL CURRENCY   ADJUSTED ISRAELI SHEKELS (NIS)
       -------------------   ------------------------------       BRITISH POUND                         1,000 ROMANIAN LEI
                                                                  STERLING                                   (ROL)
                                                                  --------             EURO             ------------------
        Linkage Currency        $         Euro     GB Pound        Euro                 $                     $
        ----------------      -----       ------   --------       -----               ------                 ----

        December 31, 2002     4.737       4.9696    7.633         0.652               0.9532                 33.5

        December 31, 2001     4.416       3.908     6.400         0.611               1.135                  31.6

        May 31, 2003          4.373       5.176     7.208         0.718               0.844                  31.4

    (7) Changes in the CPI (%):

                                        Israel        Britain        Holland         Belgium        Hungary      Romania
                                        --------------------------------------------------------------------------------
      Three month period ended
      March 31, 2003                     0.78          0.78            1.94            1.42           2.93         3.2
      -----------------------------------------------------------------------------------------------------------------------

      Year ended December 31, 2002       6.49          2.94            3.24            1.37           5.00        17.8

      Year ended December 31, 2001       1.41          1.28            4.45            2.18           6.90        30.3

      Year ended December 31, 2000        0            2.33            2.89            2.49          10.13        40.7

</TABLE>


                                      -85-
<PAGE>


    (8) Changes in the exchange rates (%):

<TABLE>
<CAPTION>
                                                      British
                                                      Pound
                                                      Sterling               1,000 Romanian
   Functional Currency    Israeli Shekels  (NIS)      (pound)    Euro            Lei (ROL)
   ----------------------------------------------------------------------------------------
   Linkage Currency          $       Euro  GB Pound   Euro         $                 $
   ----------------       -----      ----  --------   ----       ------       ---------------
<S>                      <C>         <C>     <C>      <C>         <C>             <C>
   May 31, 2003           (7.68)      4.15    (5.56)    10.12       11.45           (6.26)

   December 31, 2002       7.27      27.18    19.27      6.71      (16.12)           6.01
                          =====     =======  =======  ========== ============ ===================

   December 31, 2001       9.28       3.85     6.10     (1.86)       5.40              -
                          =====     =======  =======  ========== ============ ===================
</TABLE>


TABLE II - DERIVATIVE CONTRACTS ON FOREIGN EXCHANGE RATES

         The  Company  did not enter into any  derivative  contracts  on foreign
exchange rates.

TABLE III - INTEREST RISKS

         The following table presents a summery of balances classified according
to interest rate, at December 31, 2002:

1.       DEPOSITS AND OTHER LONG TERM LOANS- IN NIS (MILLIONS)

<TABLE>
<CAPTION>
                                                                            REPAYMENT YEARS
                                                  ------------------------------------------------------------------
  FUNCTIONAL      LINKAGE                                                                  NOT YET
   CURRENCY       CURRENCY    INTEREST RATE %     1         2        3         4         DETERMINED           TOTAL
  ----------      -------     ---------------     -         -        -         -         ----------           -----

<S>             <C>                  <C>         <C>        <C>      <C>                    <C>               <C>
EURO            U.S. dollar       9% (1)          -         -        -         -              1                 1

EURO            U.S. dollar         (2)           -         -        -         8             16                24

EURO            EURO             2.6%-4.9%        -         -        -         -              6                 6

Adjusted NIS    U.S. dollar      LIBOR - 0.7      -         -        -         -           261 (3)             261

Adjusted NIS    U.S. dollar          -            -         1        -         -              -                 1

Adjusted NIS    NIS                  -            -         -        14        -              -                14

                                                  -         1        14        8             284               307

--------------- ------------- ---------------- --------- -------- --------- --------- ------------------ ----------------
</TABLE>
(1)  Fixed Interest.

(2)  A loan in the amount of NIS 8 million  bears  annual  interest at a rate of
     LIBOR + 1%. A loan in the  amount of NIS 16  million  is  convertible  into
     ordinary  shares.  In the event that the Company decides not to convert the
     loan, the linkage interest and repayment term described above will apply to
     the loan.  See note 7(ii)(b) to the financial  statements  included in item
     18.

(3)  In order to  secure a loan in the same  amount  (see 2 below).  The  margin
     between the deposit and the loan is 0.7%.

                                      -86-
<PAGE>

2.   LONG TERM DEBTS - IN NIS (MILLIONS)

<TABLE>
                                                                                           REPAYMENT YEARS
                                                                -----------------------------------------------------------------
  FUNCTIONAL     LINKAGE                        AVERAGE                                        6 AND         NOT YET
   CURRENCY      CURRENCY   INTEREST RATE %  INTEREST RATE %    1      2     3     4     5    THEREAFTER    DETERMINED    TOTAL
   --------      --------   ---------------  ---------------    -      -     -     -     -    ----------    ----------    -----

<S>             <C>         <C>                   <C>          <C>    <C>   <C>   <C>   <C>      <C>          <C>         <C>
EURO            EURO        4.9-5.0 (1)            4.9          4      5     5     5     5        87             -         111

UK Pound        UK Pound    LIBOR + 1.25
Sterling        Sterling    -1.4                   5.4         14     13     13    13   14       202             -         269

S.A. Rand       S.A. Rand         (2)               7           -      -     -     -     -        3              -          3

                Adjusted
Adjusted NIS    NIS                -                -           -      -     -     -     -        2              -          2
                U.S.

Adjusted NIS    dollar        LIBOR                2.4          -      -     -     -     -        -           261 (3)      261

                                                               18     18     18    18   19       294            261        646
                                                               ==     ==     ==    ==   ==       ===            ===        ===
</TABLE>

(1) Fixed Interest of 4.9% up to March 2004 and thereafter  Euro SWAP + 1.2. (2)
(2) Fixed interest of 7% up to October 2003 and thereafter PRIME-1.
(3) Are  secured  by  deposits  at the same  amount (see 1 above).  The  margin
    between the deposit and the loan is 0.7%.

3.  SHORT TERM CASH AND DEPOSITS - see notes 3 and 4 to the financial statements
    included in Item 18.

4.  SHORT TERM LOANS - see note 12 to the financial  statements included in Item
    18.

           ITEM 12. -- DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

         Not applicable.

PART II
-------

           ITEM 13. -- DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

         None.

           ITEM 14. -- MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
                       AND USE OF PROCEEDS.

         Not applicable.

PART III
--------

           ITEM 15. - CONTROLS AND PROCEDURES

         We maintain  disclosure  controls and  procedures  that are designed to
ensure that  information  required to be disclosed in our periodic  filings with
the SEC is recorded, processed,  summarized and reported within the time periods
specified in the SEC's rules and forms, and that such information is accumulated
and  communicated  to  our  management,  including  our  president  (our  senior
executive  officer) and Chief Financial Officer (CFO), as appropriate,  to allow
timely decisions regarding required disclosure.  In designing and evaluating the
disclosure controls and procedures,  management recognized that any controls and
procedures,  no  matter  how  well  designed  and  operated,  can  provide  only
reasonable  assurance of achieving the desired control objectives.  Furthermore,
management  necessarily  was required


                                      -87-
<PAGE>

to use its judgment in evaluating the cost to benefit  relationship  of possible
disclosure  controls  and  procedures.  Within 90 days prior to the date of this
report,  we  performed  an  evaluation  of the  effectiveness  of the design and
operation  of  our  disclosure  controls  and  procedures.  The  evaluation  was
performed with the  participation of senior  management of each business segment
and key corporate functions, and under the supervision of the President and CFO.
Based on the  evaluation,  our  management,  including  the  President  and CFO,
concluded that our disclosure controls and procedures were effective. There have
been no  significant  changes in our internal  controls or in other factors that
could  significantly  affect  internal  controls after the date we completed the
evaluation.

           ITEM 16. -- [RESERVED]

           ITEM 17. -- FINANCIAL STATEMENTS

                                      -88-
<PAGE>

           ITEM 18. -- FINANCIAL STATEMENTS

         See Consolidated Financial Statements attached.



                    ELSCINT LIMITED AND SUBSIDIARY COMPANIES
                        CONSOLIDATED FINANCIAL STATEMENTS

                             AS OF DECEMBER 31, 2002


<PAGE>


0
FINANCIAL STATEMENTS AS OF DECEMBER 31, 2002
--------------------------------------------------------------------------------



CONTENTS

                                                                          PAGE

Independent Auditors' Report                                            1 - 2

Consolidated Balance Sheets                                             3 - 4

Consolidated Statements of Operations                                   5 - 6

Consolidated Statements of Shareholders' Equity                             7

Consolidated Statements of Cash Flows                                  8 - 11

Notes to the Consolidated Financial Statements                        12 - 86

Appendix                                                                   87

Reports of auditors of subsidiaries and investee companies






<PAGE>



AUDITORS' REPORT TO THE SHAREHOLDERS AND THE BOARD OF DIRECTORS OF

ELSCINT LIMITED

We have audited the accompanying  consolidated balance sheets of Elscint Limited
("the  Company") and subsidiary  companies as of December 31, 2002 and 2001, and
the related consolidated statements of operations, shareholders' equity and cash
flows,  for each of the three years,  the last of which ended December 31, 2002.
These  financial  statements are the  responsibility  of the Company's  Board of
Directors and of its Management.  Our responsibility is to express an opinion on
these financial statements based on our audits.

We did not  audit the  financial  statements  of  certain  subsidiaries  and the
consolidated   financial   statements  of  a  subsidiary  and  its  consolidated
subsidiaries  including those  consolidated by the  proportionate  consolidation
method,  whose assets constitute 49% and 47% of the total consolidated assets as
of December 31, 2002 and 2001, respectively,  and whose revenues constitute 33%,
26% and 25% of the total continuing and discontinuing  consolidated revenues for
the years ended December 31, 2002,  2001 and 2000,  respectively.  The financial
statements of those  subsidiaries  were audited by other  auditors whose reports
thereon  were  furnished  to us. Our  opinion,  insofar as it relates to amounts
emanating from the financial statements of such subsidiaries, is based solely on
the said reports of the other  auditors.  Furthermore,  the data included in the
financial  statements  relating to the Company's equity in an affiliate  results
for each of the two years  ended  December  31,  2001 is based on the  financial
statements of the affiliate, which were audited by another auditor.

We conducted  our audits in accordance  with U.S.  generally  accepted  auditing
standards.  Such standards  require that we plan and perform the audit to obtain
reasonable  assurance  that  the  financial  statements  are  free  of  material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the accounting  principles used and significant  estimates made by the
Board  of  Directors  and by  Management,  as well  as  evaluating  the  overall
financial statement presentation.  We believe that our audits and the reports of
other auditors provide a reasonable basis for our opinion.

In our  opinion,  based on our audits and on the reports of the above  mentioned
other auditors,  the consolidated financial statements referred to above present
fairly,  in all material  respects,  the  financial  position of the Company and
subsidiary  companies  as of December 31, 2002 and 2001 and the results of their
operations,  the  changes in the  shareholders'  equity and their cash flows for
each of the three years, the last of which ended December 31, 2002 in conformity
with generally accepted accounting principles (GAAP) in Israel. As applicable to
these  financial  statements,  Israeli  GAAP  differs in certain  respects  from
generally  accepted  accounting  principles in the United States (U.S. GAAP), as
described  in Note 33 to the  consolidated  financial  statements.  As discussed
therein,  the Company  changed its method of  accounting  for its  investment in
affiliate in 2002 to the equity method with retroactive  restatement of 2001 and
2000.

As discussed  in note  33.A.12 to the  consolidated  financial  statements,  the
Company changed its method of acounting for its investment in affiliates in 2002
with retroactive restatement of 2001 and 2000. As explained in Note 2, the above
mentioned financial  statements are stated in values adjusted for the changes in
the  general  purchasing  power of the  Israeli  currency,  in  accordance  with
opinions of the Institute of Certified Public Accountants in Israel.

As discussed in Note 28 to the accompanying  consolidated  financial statements,
the Company is defendant in lawsuits and was served with  additional  claims out
of which two claims  were filed in Israel with a request  for a  recognition  as
representative claims.

SOMEKH CHAIKIN
CERTIFIED PUBLIC ACCOUNTANTS (ISR.)

Haifa, April 2, 2003


<PAGE>

                                                                 Elscint Limited
                                                        and subsidiary companies

CONSOLIDATED BALANCE SHEETS AS OF
--------------------------------------------------------------------------------

ADJUSTED TO THE NIS AS OF DECEMBER 2002

<TABLE>
<CAPTION>

                                                                                                                 CONVENIENCE
                                                                                                                 TRANSLATION
                                                                                                                 -----------
                                                                                                                   (NOTE 2A)
                                                                             DECEMBER 31,      DECEMBER 31,     DECEMBER 31,
                                                                                     2002         *    2001             2002
                                                                             ------------      ------------            -----
                                                                             ADJUSTED NIS      ADJUSTED NIS            U.S.$
                                                                   NOTE       (THOUSANDS)       (THOUSANDS)      (THOUSANDS)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>         <C>              <C>               <C>
 ASSETS

 CURRENT ASSETS

 Cash and cash equivalents                                            3           92,952           293,908           19,622
 Short-term investments and deposits                                  4          157,505           154,675           33,250
 Accounts receivable - trade, net                                     5           19,004            14,801            4,012
 Other accounts receivable and prepaid expenses                       6           21,757            21,326            4,593
 Hotels Inventories                                                                3,109             3,453              656
                                                                               ---------         ---------          -------
                                                                                 294,327           488,163           62,133
                                                                               ---------         ---------          -------


 LONG-TERM ACCOUNTS AND INVESTMENTS

 Investments, loans and long-term receivables, net                    7          352,480           357,990           74,410
 Investments in affiliated company                                    8           32,510                 -            6,863
 Venture-Capital investments                                          9                -            29,518                -
                                                                               ---------         ---------          -------
                                                                                 384,990           387,508           81,273
                                                                               ---------         ---------          -------

 FIXED ASSETS, NET                                                   10        1,637,656         1,359,870          345,716
                                                                               ---------         ---------          -------

 OTHER ASSETS, NET                                                   11           12,234            11,927            2,583
                                                                               ---------         ---------          -------

 ASSETS RELATED TO DISCONTINUING OPERATION                           31          114,134           190,521           24,094
                                                                               ---------         ---------          -------
                                                                               2,443,341         2,437,989          515,799
                                                                               =========         =========          =======
</TABLE>

*   Reclassified.

The accompanying notes are an integral part of the financial statements.

                                                                               3
<PAGE>

                                                                 Elscint Limited
                                                        and subsidiary companies

CONSOLIDATED BALANCE SHEETS AS OF
--------------------------------------------------------------------------------

ADJUSTED TO THE NIS AS OF DECEMBER 2002

<TABLE>
<CAPTION>

                                                                                                                 CONVENIENCE
                                                                                                                 TRANSLATION
                                                                                                                 -----------
                                                                                                                   (NOTE 2A)
                                                                             DECEMBER 31,      DECEMBER 31,     DECEMBER 31,
                                                                                     2002         *    2001             2002
                                                                             ------------      ------------            -----
                                                                             ADJUSTED NIS      ADJUSTED NIS            U.S.$
                                                                   NOTE       (THOUSANDS)       (THOUSANDS)      (THOUSANDS)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>        <C>               <C>               <C>
 LIABILITIES AND
  SHAREHOLDERS' EQUITY

 CURRENT LIABILITIES

 Short-term credits                                                  12         532,274           446,938           112,365
 Accounts payable - trade                                                        23,067            27,195             4,870
 Accrued liabilities                                                 13          87,153            48,642            18,398
 Advance from customer in respect of project
   in progress, net                                                  14               -             1,538                 -
                                                                              ---------         ---------           -------
                                                                                642,494           524,313           135,633
                                                                              ---------         ---------           -------

 LONG-TERM LIABILITIES

 Long-term debts                                                     15         627,863           601,333           132,545
 Deferred income tax liability                                       18          10,943            18,296             2,310
 Liability for employee severance benefits, net                      16             513               361               108
                                                                              ---------         ---------           -------
                                                                                639,319           619,990           134,963
                                                                              ---------         ---------           -------

 LIABILITIES RELATED TO DISCONTINUING OPERATIONS                     31         110,553           255,438            23,338
                                                                              ---------         ---------           -------

 MINORITY INTEREST                                                               29,568            27,916             6,242
                                                                              ---------         ---------           -------
 COMMITMENTS AND CONTINGENCIES                                   20, 28

 SHAREHOLDERS' EQUITY                                                17       1,021,407         1,010,332           215,623
                                                                              ---------         ---------           -------
                                                                              2,443,341         2,437,989           515,799
                                                                              =========         =========           =======
*  Reclassified.

/s/ A.R. Goren                                                                /s/ R. Lavine
------------------------------------                                          ----------------------------
A.R. Goren                                                                    R. Lavine
Chairman of the Board of Directors                                            President


</TABLE>

Date:   April 2, 2003

The accompanying notes are an integral part of the financial statements.
                                                                               4
<PAGE>

                                                                 Elscint Limited
                                                        and subsidiary companies

CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------

ADJUSTED TO THE NIS AS OF DECEMBER 2002
<TABLE>
<CAPTION>

                                                                                                                 CONVENIENCE
                                                                                                                 TRANSLATION
                                                                                                                 -----------
                                                                         YEAR ENDED DECEMBER 31,                   (NOTE 2A)
                                                              --------------------------------------------      DECEMBER 31,
                                                                  2002            *2001         *2000                   2002
                                                              --------------------------------------------             -----
                                                      NOTE              ADJUSTED NIS  (THOUSANDS)             U.S.$ (THOUSANDS)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                   <C>          <C>            <C>            <C>               <C>
 REVENUES                                             21

 Operating and managing hotels                                    210,650        141,898        108,088            44,469
 Revenue from long-term contracts                                   1,538         10,221         20,367               325
                                                                  -------        -------        -------            ------
                                                                  212,188        152,119        128,455            44,794
                                                                  -------        -------        -------            ------
 COST OF REVENUES                                     22

 Hotels operations                                                135,766         97,692         69,924            28,661
 Cost of long-term contracts                                        1,419          7,451         18,244               300
                                                                  -------        -------        -------            ------
                                                                  137,185        105,143         88,168            28,961
                                                                  -------        -------        -------            ------

 GROSS PROFIT                                                      75,003         46,976         40,287            15,833

 Hotels' depreciation, amortization
  and operation expenses                              23           62,685         32,156         23,124            13,233
 Initial expenses, net                                              1,807          4,036          1,848               381
 General and administrative expenses                  24           32,181         26,285         23,709             6,794
                                                                  -------        -------        -------            ------

 OPERATING LOSS                                                   (21,670)       (15,501)        (8,394)           (4,575)

 Finance income (expenses), net                       25           13,051         66,344        (20,599)            2,755
 Other (expenses) income, net                         26          (21,915)       (13,366)         2,667            (4,626)
                                                                  -------        -------        -------            ------

(LOSS) INCOME BEFORE INCOME TAXES                                 (30,534)        37,477        (26,326)           (6,446)

 Income taxes                                          18          (5,321)         5,486          4,723            (1,123)
                                                                  -------        -------        -------            ------
(LOSS) INCOME AFTER INCOME TAXES                                  (25,213)        31,991        (31,049)           (5,323)

 The Company's share in loss
  of affiliated companies                                           2,902          9,899          3,302               612

 Minority interest in loss
  of a subsidiary, net                                                896          1,313              -               189
                                                                  -------        -------        -------            ------
 NET (LOSS) INCOME FROM CONTINUING
   OPERATIONS                                                     (27,219)        23,405        (34,351)           (5,746)

 NET INCOME FROM DISCONTINUING OPERATION              31           90,693         34,587         77,940            19,146
                                                                  -------        -------        -------            ------
 NET INCOME                                                        63,474         57,992         43,589            13,400
                                                                  =======        =======        =======            ======
</TABLE>

*  Reclassified.

The accompanying notes are an integral part of the financial statements.
                                                                               5
<PAGE>

                                                                 Elscint Limited
                                                        and subsidiary companies

CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------

ADJUSTED TO THE NIS AS OF DECEMBER 2002
<TABLE>
<CAPTION>

                                                                                                                 CONVENIENCE
                                                                                                                 TRANSLATION
                                                                                                                 -----------
                                                                         YEAR ENDED DECEMBER 31,                   (NOTE 2A)
                                                              --------------------------------------------      DECEMBER 31,
                                                                  2002            *2001         *2000                   2002
                                                              --------------------------------------------             -----
                                                      NOTE              ADJUSTED NIS  (THOUSANDS)             U.S.$ (THOUSANDS)
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                      <C>          <C>            <C>            <C>               <C>
      BASIC EARNINGS (LOSS) PER ORDINARY
        SHARE (NIS 0.05 PAR VALUE) FROM:                  27

      Continuing operations                                           (1.63)         1.40          (2.06)            (0.34)
      Discontinuing operation                                          5.43          2.07           4.67              1.15
                                                                      -----          ----          -----             -----
                                                                       3.80          3.47           2.61              0.81
                                                                      =====          ====          =====             =====
      DILUTED EARNINGS (LOSS) PER ORDINARY
       SHARE (NIS 0.05 PAR VALUE) FROM:

      Continuing operations                                           (1.69)         1.40          (2.06)            (0.36)
      Discontinuing operation                                          5.20          2.07           4.67              1.10
                                                                      -----          ----          -----             -----
                                                                       3.51          3.47           2.61              0.74
                                                                      =====          ====          =====             =====
</TABLE>

      *  Reclassified.

                                                                               6
<PAGE>

                                                                 Elscint Limited
                                                        and subsidiary companies

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
--------------------------------------------------------------------------------

ADJUSTED TO THE NIS AS OF DECEMBER 2002
<TABLE>
<CAPTION>

                                                                                                         LOAN TO
                                                                        CUMULATIVE                    RECIPIENTS
                                                                           FOREIGN                  FOR PURCHASE
                                                                          CURRENCY                  OF COMPANY'S          TOTAL
                                                 SHARE       CAPITAL   TRANSLATION    RETAINED         INCENTIVE  SHAREHOLDERS'
                                                CAPITAL      SURPLUS   ADJUSTMENTS    EARNINGS            SHARES         EQUITY
                                                -------      -------   -----------    --------            ------         ------
                                                                         ADJUSTED NIS (THOUSANDS)
                                                ------------------------------------------------------------------------------------
<S>                                              <C>        <C>            <C>        <C>               <C>          <C>
 BALANCE AT
  JANUARY 1, 2000                                5,369      722,107        (3,204)    176,699                 -        900,971

 Net income for the year                             -            -             -      43,589                 -         43,589
 Employee stock options
  exercised and paid                                 2        1,167             -           -                 -          1,169
 Foreign currency
  translation adjustments                            -            -        (9,504)          -                 -         (9,504)
                                                 -----      -------        ------     -------           -------      ---------

 BALANCE AT
  DECEMBER 31, 2000                              5,371      723,274       (12,708)    220,288                 -        936,225

 Net income for the year                             -            -             -      57,992                 -         57,992
 Issuance of incentive

   Shares                                           41       12,953             -           -           (12,994)             -
 Foreign currency
  translation adjustments                            -            -        16,115           -                 -         16,115
                                                 -----      -------        ------     -------           -------      ---------

 BALANCE AT
  DECEMBER 31, 2001                              5,412      736,227         3,407     278,280           (12,994)     1,010,332

 Net income for the year                             -            -             -      63,474                 -         63,474
 Incentive shares which
   were returned to pool                            (2)        (706)            -           -               708              -
 Erosion net of interest on
   loan to recipients                               (3)         (75)            -           -                78              -
 Dividend *                                          -            -             -     (87,809)                -        (87,809)
 Foreign currency
  translation adjustments                            -            -        35,410           -                 -         35,410
                                                 -----      -------        ------     -------           -------      ---------

 BALANCE AT
  DECEMBER 31, 2002                              5,407      735,446        38,817     253,945           (12,208)     1,021,407
                                                 =====      =======        ======     =======           =======      =========
</TABLE>

*    Not including  dividend in the amount of NIS 3,331 thousand,  in respect of
     incentive  shares,  which was  recorded as an expense in the  statement  of
     operations.

The accompanying notes are an integral part of the financial statements.

                                                                               7
<PAGE>

                                                                 Elscint Limited
                                                        and subsidiary companies

CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------

ADJUSTED TO THE NIS AS OF DECEMBER 2002
<TABLE>
<CAPTION>

                                                                                                           CONVENIENCE
                                                                                                           TRANSLATION
                                                                                                             (NOTE 2A)
                                                                                                          ------------
                                                                       YEAR ENDED DECEMBER 31,            DECEMBER 31,
                                                                       -----------------------                    2002
                                                                   2002      *   2001      *   2000       ------------
                                                                   ----      --------      --------              U.S.$
                                                                        ADJUSTED NIS (THOUSANDS)           (THOUSANDS)
                                                                   --------------------------------       ------------
<S>                                                                <C>            <C>      <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

Net income                                                           63,474      57,992      43,589            13,400
Adjustments to reconcile net income to net cash provided by
 (used in) operating activities from continuing operations (A)      (59,648)    (34,531)    (72,875)          (12,592)
                                                                   --------      ------    --------           -------
Net cash  provided by (used in) operating activities from
 continuing operations                                                3,826      23,461     (29,286)              808
Net cash provided by (used in) operating activities from
  discontinuing operation                                            24,599      16,206     (53,357)            5,193
                                                                   --------      ------    --------           -------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES                  28,425      39,667     (82,643)            6,001
                                                                   --------      ------    --------           -------
CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from sale of affiliated company                                  -      22,247           -                 -
Proceeds from sale of fixed assets                                      404         518         697                85
Purchase of fixed assets and other assets                          (176,658)   (208,319)   (201,287)          (37,293)
Purchase of venture capital investment                               (4,882)    (23,271)     (6,853)           (1,031)
Proceeds from sale of  long-term investments and loans                3,458       2,624      85,933               730
Proceeds from short - term investments, net                           1,908     101,205      74,818               403
Purchase of long-term investments and loans                            (683)    (47,501)    (60,494)             (144)
Purchase of investment on cost basis                                      -     (26,128)   (101,510)                -
Proceeds from investment in a subsidiary company (B)                      -       3,599           -                 -
                                                                   --------      ------    --------           -------

Net cash used in investing activities from continuing operations   (176,453)   (175,026)   (208,696)          (37,250)
Net cash (used in) provided by investing
  activities from discontinuing operation                            (2,404)    121,595     (26,757)             (507)
                                                                   --------      ------    --------           -------
NET CASH USED IN INVESTING ACTIVITIES                              (178,857)    (53,431)   (235,453)          (37,757)
                                                                   --------      ------    --------           -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of share capital
  (including capital surplus, net)                                        -           -       1,170                 -
Proceeds from long-term debts                                         4,676      83,082     221,630               987
Payments of long-term debt                                         (143,817)     (8,418)   (170,318)          (30,360)
Dividend Distributed                                                (87,809)          -           -           (18,537)
Payment of principal to suppliers for prior year purchases
  of fixed assets                                                         -           -        (408)                -
Issuance of shares to minority in a subsidiary company                  555           -           -               117
Change in short-term credits, net                                   173,644     (59,802)    102,600            36,657
                                                                   --------      ------    --------           -------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES FROM

 CONTINUING OPERATIONS                                              (52,751)     14,862     154,674           (11,136)
                                                                   --------      ------    --------           -------
NET EFFECT OF EXCHANGE RATE CHANGES ON CASH                           2,227       3,106      (1,150)              470
                                                                   --------      ------    --------           -------
Net (decrease) increase in cash and cash equivalents               (200,956)      4,204    (164,572)          (42,422)
Cash and Cash Equivalents at Beginning of year                      293,908     289,704     454,276            62,044
                                                                   --------      ------    --------           -------
CASH AND CASH EQUIVALENTS AT END OF YEAR                             92,952     293,908     289,704            19,622
                                                                   ========      ======    ========           =======
</TABLE>

*  Reclassified.

The accompanying notes are an integral part of the financial statements.
                                                                               8
<PAGE>

                                                                 Elscint Limited
                                                        and subsidiary companies

CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------

ADJUSTED TO THE NIS AS OF DECEMBER 2002
<TABLE>
<CAPTION>

                                                                                                           CONVENIENCE
                                                                                                           TRANSLATION
                                                                                                             (NOTE 2A)
                                                                                                          ------------
                                                                       YEAR ENDED DECEMBER 31,            DECEMBER 31,
                                                                       -----------------------                    2002
                                                                   2002      *   2001      *   2000       ------------
                                                                   ----      --------      --------              U.S.$
                                                                        ADJUSTED NIS (THOUSANDS)           (THOUSANDS)
                                                                   --------------------------------       ------------
<S>                                                               <C>           <C>           <C>           <C>

(A)     ADJUSTMENTS  TO  RECONCILE  NET  INCOME  TO
        NET  CASH  FROM  CONTINUING OPERATIONS:

 INCOME AND EXPENSES NOT INVOLVING CASH FLOW:

Discontinuing operation                                           (90,693)      (34,587)      (77,940)      (19,146)
Depreciation and amortization                                      54,939        21,972        14,516        11,598
The Company's share in loss of affiliated companies                 2,902         9,899         3,302           612
Decrease in value of investments and loans not of
  a temporary nature                                                4,012        13,004             -           847
Capital loss (gain)                                                   171           482          (158)           36
Exchange differences on investments and loans, net                (22,395)      (44,149)        3,519        (4,727)
Changes in liability for employee severance benefits, net              84          (293)       (3,572)           18
Loss (profit) from evaluation of marketable securities                476          (607)        1,503           100
Changes in deferred income taxes, net                              (5,765)           72         1,415        (1,217)
Minority interest in loss of a subsidiary, net                       (896)       (1,313)            -          (189)


CHANGES IN ASSETS AND LIABILITIES:

Decrease (increase) in:

Accounts receivable - trade, net                                   (1,290)        2,360        (5,471)         (272)
Other accounts receivable and prepaid expenses                     (5,931)        1,408          (139)       (1,252)
Hotel inventories                                                     907           (78)         (133)          191

Increase (Decrease) in:

Accounts payable-trade                                             (1,873)          231        (6,360)         (395)
Accrued liabilities                                                 5,362         7,290        12,187         1,132
Advance from customer in respect of project in progress, net       (1,538)      (10,222)      (15,544)         (325)
Deposits from renters                                               1,880             -             -           397
                                                                  -------       -------       -------       -------
                                                                  (59,648)      (34,531)      (72,875)      (12,592)
                                                                  =======       =======       =======       =======
</TABLE>


*  Reclassified.

The accompanying notes are an integral part of the financial statements.

                                                                               9
<PAGE>

                                                                 Elscint Limited
                                                        and subsidiary companies

CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------

ADJUSTED TO THE NIS AS OF DECEMBER 2002

 (B)   ACQUISITION OF INITIALLY - CONSOLIDATED SUBSIDIARY

       In April 2001, the company, through its wholly-owned subsidiary, achieved
       actual control in Bucuresti  (until that date the investment in Bucuresti
       was presented on cost basis).

       Assets and  liabilities of the subsidiary  company at the date of initial
       consolidation are as follows:

                                                                   ADJUSTED NIS
                                                                    (THOUSANDS)
                                                                   ------------
Deficit in working capital (excluding cash), net                           820
Investments on cost basis                                              132,211
Fixed assets, net                                                     (169,578)
Deferred income tax liability                                           13,363
Minority interest                                                       26,783
                                                                      --------
                                                                         3,599
                                                                      ========






The accompanying notes are an integral part of the financial statements.

                                                                              10
<PAGE>

                                                                 Elscint Limited
                                                        and subsidiary companies
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------

ADJUSTED TO THE NIS AS OF DECEMBER 2002
<TABLE>
<CAPTION>

                                                                                                             CONVENIENCE
                                                                                                             TRANSLATION
                                                                                                               (NOTE 2A)
                                                                                                            ------------
                                                                       YEAR ENDED DECEMBER 31,              DECEMBER 31,
                                                                       -----------------------                      2002
                                                                   2002      *   2001      *   2000         ------------
                                                                   ----      --------      --------                U.S.$
                                                                        ADJUSTED NIS (THOUSANDS)             (THOUSANDS)
                                                                   --------------------------------         ------------
<S>                                                              <C>            <C>             <C>                  <C>
(C)    SUPPLEMENTAL SCHEDULE OF NON-CASH
       TRANSACTIONS AND INVESTING ACTIVITIES

  Purchase of fixed assets against
   increase in accounts payable                                  34,973         14,048          7,935              7,383
                                                                 ======         ======          =====              =====

  Purchase of other assets against
   increase in accounts payable                                   1,250              -              -                264
                                                                 ======         ======          =====              =====
  Sale of affiliated company against
    decrease in accrued liability                                     -         13,382              -                  -
                                                                 ======         ======          =====              =====
  Investment grant receivable in respect
    of fixed assets                                               5,366              -              -              1,133
                                                                 ======         ======          =====              =====
  Purchase of venture capital investments shares
    against disposal of long term loan                            3,006              -              -                635
                                                                 ======         ======          =====              =====
  Deposits from renters against
    increase in accounts receivable                                 207              -              -                 44
                                                                 ======         ======          =====              =====
</TABLE>

    * Reclassified.

The accompanying notes are an integral part of the financial statements.

                                                                              11
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 1 - GENERAL

 A.       The Company and its subsidiaries has been engaged at the balance-sheet
          date, directly and through its investees, in Israel and abroad, in the
          following areas:

          -  Ownership,  management and operation of hotels,  mainly through the
             Park Plaza network,  primarily in major  European  cities (See Note
             19).

          -  Establishing an entertainment and commercial center at the Herzliya
             Marina (See Note 29.C).

-        Investments in the Bio-Medical field.

 B.       Until  2002,  the  Company and its  subsidiaries  were  engaged in the
          production  of  sub-assemblies  and  components,  mainly  for  medical
          imaging equipment.

          Upon completion of the  transaction  described in Note 31 the activity
          of the  Company  in the  sub-assemblies  and  components  segment,  in
          particular,  and in the  medical  imaging  area,  in general  has been
          discontinued.  As a result, the assets and liabilities which relate to
          the discontinuing  operation,  were included in separate categories in
          the  balance  sheet  "assets/liabilities   relating  to  discontinuing
          operation".  In addition,  the transactions and cash flows relating to
          the aforesaid  operation  were included in a separate  category in the
          statement of operations "income from  discontinuing  operation" and in
          the  statement  of cash flows  "cash  flows  related to  discontinuing
          operation", respectively. The comparative figures for prior years were
          reclassified  in  order to  reflect  therein,  retroactively,  for all
          reported  years,  presentation  of the assets,  liabilities,  revenues
          expenses and cash flows, which relate to the discontinuing  operation,
          separate from those which relate to the continuing operations.

 C.       The shares of the  Company  are  registered  for trade on the New York
          Stock Exchange.

 D.       DEFINITIONS

         (1)      THE COMPANY - Elscint Ltd.  and its investee companies.

         (2)      SUBSIDIARIES  - companies in which the Company holds more than
                  50% of the voting rights or of the rights to appoint directors
                  (other than cases in which control is deemed temporary).

         (3)      PROPORTIONATELY  CONSOLIDATED  SUBSIDIARIES  -  companies  and
                  joint ventures  (including  partnerships) held by the Company,
                  together  with  other   entities,   among  which  there  is  a
                  contractual  agreement for joint  control,  according to which
                  resolutions  vital to the joint  venture would be made jointly
                  and with the consent of all  shareholders  and whose financial
                  statements  are  (directly or  indirectly)  consolidated  with
                  those  of  the  Company  by  the  proportionate  consolidation
                  method.

         (4)      AFFILIATES  -  companies  in which the  Company's  (direct  or
                  indirect) rights entitle it to exercise significant  influence
                  on their financial and operating  policies and which have been
                  included on the basis of the equity method, in accordance with
                  the principles  established by Opinion No. 68 of the Institute
                  of Certified  Public  Accountants in Israel ("the  Institute")
                  and which are not fully or proportionately consolidated.

         (5)      INVESTEE     COMPANIES    -     consolidated     subsidiaries,
                  proportionately   consolidated   subsidiaries  and  affiliates
                  (major investee companies are presented in the appendix to the
                  financial statements).

         (6)      VENTURE - CAPITAL  INVESTMENTS - companies,  which at the time
                  of the Company's investment therein, are mainly engaged in R&D
                  of new  knowledge-intensive  products or product in  progress.
                  The investment in which constitutes  above-average risk and at
                  least  90% of their  financing  originates  from  shareholders
                  capital, support of government agencies or investment grants.

         (7)      PARENT COMPANY - Elbit Medical Imaging Ltd. ("EMI")

                                                                              12
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 1 - GENERAL (CONT'D)

 D.       DEFINITIONS (CONT'D)

         (8)      EUROPE ISRAEL GROUP - Europe Israel (M.M.S.) Ltd. ("EIL"), the
                  controlling party in EMI, and its investee companies.

         (9)      CONTROL CENTERS - Control  Centers Ltd. the controlling  party
                  in EIL.

         (10)     CONTROL  CENTERS  GROUP -  Control  Centers  and its  investee
                  companies.

         (11)     B.H.  - Bea Hotels  N.V.,  a company  incorporated  in Holland
                  which holds the hotel division.

         (12)     RELATED  PARTIES  - as  defined  in  Opinion  No.  29  of  the
                  Institute,  including  interested  parties  as  defined in the
                  Israeli   Securities   Regulations   (Preparation   of  Annual
                  Financial Statements), 1993.

         (13)     ADJUSTED FINANCIAL STATEMENTS - as described in Note 2.A.

         (14)     SALE TRANSACTION - as described in Note 31.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

 A.       FINANCIAL STATEMENTS IN ADJUSTED VALUE

         (1)      GENERAL

                  The  financial  statements  are  presented on the basis of the
                  historical-cost  convention in New Israeli  Shekels ("NIS") of
                  constant  purchasing  power (NIS of December 2002)  ("Adjusted
                  Financial Statements") in accordance with Israeli GAAP.

                  The  Company  maintains  its  accounting  records on a current
                  basis in  nominal  NIS,  which  have been  adjusted  to NIS of
                  constant purchasing power in accordance with Opinion No. 36 of
                  the  Institute.  Until  September  30,  1999,  the  functional
                  currency  of the  Company  was the  U.S.$.  Due to a change in
                  circumstances  and  in  the  Company's  main  activities,   as
                  outlined in Note 1 above,  it was  determined  that the NIS is
                  the  functional   currency   starting  October  1,  1999.  The
                  financial statements as of September 30, 1999 were, therefore,
                  adjusted  on the  basis of the  exchange  rate of the U.S.$ in
                  effect at that time and,  since  then,  to the  changes in the
                  Israeli consumer-price index ("CPI").

                  The term "cost" in the financial statements refers to adjusted
                  cost,  unless otherwise  stated.  Comparative  figures for the
                  previous periods, have been adjusted to NIS of December 2002.

                  The adjusted financial  statements as of December 31, 2002 and
                  for the year then ended have been  translated into U.S.$ using
                  the representative  exchange rate as of that date (U.S.$ = NIS
                  4.737).  Such  translation was made solely for the convenience
                  of the U.S. readers.  The dollar amounts so presented in these
                  financial  statements  should not be construed as representing
                  amounts  receivable or payable in dollars or convertible  into
                  dollars, unless otherwise indicated.

                                                                              13
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

 A.       FINANCIAL STATEMENTS IN ADJUSTED VALUE (CONT'D)

         (2)      PRINCIPLES OF ADJUSTMENTS

                  BALANCE SHEET
                  The  balance-sheet   items  have  been  adjusted  as  follows:
                  Non-monetary items have been adjusted according to the changes
                  in the exchange rate of the U.S.$ from date of  acquisition up
                  to September 1999 and from that date (or the acquisition  date
                  - the later of the two) up to the  balance-sheet  date - based
                  on  the  changes  in the  CPI.  Monetary  items  (representing
                  amounts  receivable  or payable at stated values or reflecting
                  realizable values) are presented in the balance sheet at their
                  nominal values.

                  The value of  investments  in investee  companies and minority
                  interest in consolidated  subsidiaries have been determined on
                  the  basis  of the  adjusted  financial  statements  of  these
                  companies.  The adjusted amounts of non-monetary assets do not
                  necessarily  represent  realizable or real economic value, but
                  only the  original  values  adjusted  for the  changes  in the
                  purchasing power of the currency of measurement.

                  STATEMENT OF OPERATIONS
                  The  components  of the  statement  of  operations  have  been
                  adjusted as  follows:  Income and  expenses  (other than those
                  stemming  from  non-monetary  items and except for  financing)
                  relating  to  transactions  carried  out  during  the period -
                  revenues,  cost of  revenues,  labor  costs,  etc. - have been
                  adjusted,   on  a  monthly  basis  at  the  time  the  related
                  transactions  were  carried  out,  based on the changes in the
                  CPI. The inflationary adjustment of monetary balances relating
                  to the aforesaid  transactions  has been included in financing
                  income or expenses as applicable. Income and expenses stemming
                  from   non-monetary    items   (such   as   depreciation   and
                  amortization) and the items relating to balance sheet accruals
                  have been adjusted on the basis of specific indices concurrent
                  to the adjustment of the corresponding balance-sheet item.

                  The  erosion  of tax  advances,  net of  refunds  claimed,  is
                  included in current income taxes.

                  The Company's share in earning of affiliated companies as well
                  as that of the  minority  interest  in the results of investee
                  companies has been  determined on the basis of their financial
                  statements.  Net financing reflects financial expenses, net of
                  financial  income in real terms (such as interest on loans and
                  short-term  borrowings) as well as the inflationary erosion of
                  monetary  items  stemming  from  transactions  included in the
                  statement of  operations  and gains or losses from  marketable
                  securities.

                  INVESTEE COMPANIES OPERATING ABROAD
                  Investee   companies   operating   abroad   and   constituting
                  "autonomous  entities"  prepare their financial  statements in
                  accordance  with the principles  established in Opinion No. 36
                  of  the   Institute  in  the  currency  of  their  country  of
                  residence,  which is their functional currency.  The financial
                  statements  of  these   companies  were   translated  to  NIS,
                  subsequent to their  adjustment to the CPI in their country of
                  residence,  according  to the  exchange  rate in effect on the
                  balance-sheet date. Differences arising between the adjustment
                  of the Company's investment amount in the investees (including
                  monetary  balances  of a capital  nature)  on the basis of the
                  changes  in  the  Israeli  CPI,  and  the  adjustment  of  the
                  Company's   share  in  the   shareholders'   equity  of  these
                  investees,  based on the changes in the  exchange  rate of the
                  local currency against the NIS and the local CPI, are included
                  in  "foreign  exchange  translation   differences  of  foreign
                  investees"  in  shareholders'  equity.  Financial  differences
                  arising from loans in foreign  currency used for the financing
                  of  investments  in  foreign  autonomous  entities  as well as
                  income  taxes  relating  to such  differences  have  also been
                  included in that component of shareholders' equity.

                                                                              14
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

 A.       FINANCIAL STATEMENTS IN ADJUSTED VALUE (CONT'D)

         (2) PRINCIPLES OF ADJUSTMENTS (CONT'D)

                  Investee  companies   operating  abroad  and  constituting  an
                  extension  of the Company (as defined in Opinion No. 36 of the
                  Institute)  prepare  their  financial  statements  in  foreign
                  currency.  The financial  statements of these  companies  were
                  translated  to  NIS,  with  non-monetary  balance-sheet  items
                  translated  by  historical  exchange  rates and adjusted up to
                  September   1999   based   on   the   dollar's   exchange-rate
                  differences,  and from then on (or from date of  acquisition -
                  the later of the two) adjusted to changes in the CPI. Monetary
                  balance-sheet items were adjusted on the basis of the exchange
                  rate   in   effect   on   the    balance-sheet    date.    The
                  statement-of-operations  items  were  adjusted  from  date  of
                  transaction  to  the  CPI.   Differences  arising  from  these
                  translations are included in financial expenses.

B.        PRINCIPLES OF CONSOLIDATION

          The  financial  statements  include the  accounts of the  companies in
          which the Company has control.  Jointly controlled companies have been
          included  on  the  basis  of the  proportionate-consolidation  method.
          Material  inter-company  balances  and  transactions  among  the Group
          companies  have been  eliminated in the  consolidation.  The excess of
          cost of the Company's  investments in consolidated  subsidiaries which
          is not related to identifiable assets and liabilities ("Goodwill"), is
          included  in  "Intangible  assets and  deferred  charges,  net" and is
          amortized by the straight-line method over a period of ten years.

          The excess of cost of investments  allocated was apportioned to assets
          and liabilities, to relevant items in the balance sheet.

C.        CASH AND CASH EQUIVALENTS

          Cash equivalents include unrestricted liquid deposits with an original
          maturity not exceeding three months.

D.        SECURITIES

          Investments  in marketable  securities,  designated by management  for
          sale in the short term, are included in current assets at their market
          value  at the  balance-sheet  date.  Changes  in  the  value  of  such
          securities are included in the statement of operations as incurred.

          Investments in securities not designated by management for sale in the
          short term, and which are not part of the Company's  liquid  resources
          are  presented  at cost except  when a  provision  has been made for a
          decline in value not of a temporary nature.

E.        ALLOWANCE FOR DOUBTFUL DEBTS

          The allowance has been determined on specific balances, the collection
          of which - in the opinion of management - is doubtful.  In determining
          the fairness of the allowance  Management based itself,  on informaton
          at hand  about  debtors'  financial  situation,  the  volume  of their
          operations,  aging  of the  balance  and  evaluation  of the  security
          received from them.

                                                                              15
<PAGE>

                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

F.        INVENTORIES

          Inventory  is stated at the  lower of cost or  market  value.  Cost is
          determined as follows:

          1.   Hotel   inventories   (including  food,   beverages  and  current
               operating supplies) - by the first-in first-out ("FIFO") method.

          2.   Inventory included in discontinuing operation (see Note 31):

                - Raw materials and spare parts - on a "moving average" basis.

                - Finished  products  and  work in  process  - on the  basis  of
                  production cost,  which includes the cost of materials,  labor
                  cost and indirect manufacturing expenses.

G.        INVESTMENTS IN AFFILIATED COMPANIES

          Investments  in  affiliated  companies  are presented in the Company's
          financial  statements by the equity  method.  The  calculation  of the
          Company's  share in the  shareholders'  equity of  investee  companies
          takes into account  losses (if any) from the  anticipated  exercise of
          convertible  securities  or rights to shares which were issued by such
          investee companies, if their conversion or exercise is probable.

          The excess of the  investment's  cost over the Company's  share in the
          fair value of the investees'  net identified  assets at acquisition or
          at the date the investee  initially  treaded under equity  method,  is
          recorded as goodwill and amortized over its estimated economic benefit
          period (10 years).

 H.       VENTURE - CAPITAL INVESTMENT

          Investments of consolidated subsidiaries constituting  venture-capital
          funds in "venture-capital  investments",  as defined by Standard No. 1
          of the Israeli  Accounting  Standards Board, have been included on the
          basis of cost which - in the opinion of  management  - does not exceed
          their fair value.

 I.       FIXED ASSETS

          (1)  The  assets  are  stated  at cost,  after  deduction  of  related
               investment grants.

          (2)  The cost of the land and building  construction includes costs in
               respect of which the Company's  commitment had been  crystallized
               up to each financial  statement date (i.e.,  all major conditions
               required  for  the   conclusion   of  the   commitment   and  its
               implementation  had been  fulfilled)  and its amount  determined.
               Amounts not yet paid by the  balance-sheet  date are,  therefore,
               presented as a liability.

          (3)  Improvements  and  renovations are  capitalized.  Maintenance and
               repair expenses are charged to operations as incurred.

          (4)  Financial expenses in real  (non-inflationary)  terms, in respect
               of borrowings used for construction (including the acquisition of
               the related land) as well as direct  supervision and construction
               costs incurred in the pre-operating period, have been capitalized
               to the  cost  of the  buildings.  As for  the  capitalization  of
               borrowing costs - see item N below

          (5)  Regarding fixed assets acquired from companies having controlling
               interest in the Company - see item S below.

                                                                              16
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES  (CONT'D)

          I.   FIXED ASSETS (CONT'D)

          (6)  Depreciation  is computed by the  straight-line  method at annual
               rates  considered  sufficient to depreciate the assets over their
               useful  lives.  Leasehold  improvements  are  amortized  over the
               estimated  useful  period,  which  does not  exceed  the  leasing
               period. Annual depreciation rates follow:
<TABLE>
<CAPTION>
<S>                                                                                         <C>
                                                                                                       %
            Freehold Land                                                                              0
            Leasehold land                                                                    Over leasing period
            Buildings                                                                               2 - 2.5
            Hotels                                                                                    1.5
            Hotels operating systems                                                               7 average
            Leasehold improvements                                                                  10 - 33
            Furniture, equipment, vehicles and computers (included in sundry)               10 - 33 (mainly 10-20)
</TABLE>

J.        OTHER ASSETS AND DEFERRED EXPENSES

          (1) PRE-OPENING HOTEL EXPENSES

              Pre-opening  expenses  of a hotel  (mainly  -  employee  training,
              testing of hotel systems and preparation of the hotel for opening)
              are stated at cost and are amortized over a three-year period from
              commencement of operations.

         (2) EXPENSES FOR OBTAINING LOANS

              Expenses  incurred in obtaining  loans are capitalized as incurred
              and are included in the  statement of  operations  over the loans'
              period of benefit and in relation to their balance.

         (3)  PROJECT DEVELOPMENT COSTS

              Operating expenses relating to initiation activities (prior to the
              finalization  of the land  acquisition,  etc.) are  capitalized as
              incurred,  when the  property  acquisition  is  probable,  and are
              charged to the cost of the real estate  project upon  execution of
              the  transaction,  otherwise  these  expenses  are  charged to the
              statement of operations.

         (4) COST OF OBTAINING LONG-TERM LEASES

              Expenses  for  obtaining   long-term  leases  are  capitalized  as
              incurred and are charged to operations over the lease period.

K.        LONG-TERM RECEIVABLES AND LIABILITIES

         (1)  Long-term  loans  for a fixed  period,  which do not  bear  stated
              interest or interest rate lower than the market interest, when the
              difference  between the  adjusted  value of the balances and their
              present value is material, are stated at present value (discounted
              at  market  interest  rates in  effect  for  similar  loans).  The
              effective  interest is charged to operations  over the term of the
              loan.

         (2)  Short-term  supplier  credit  and  other  liabilities,  as well as
              short-term bank borrowings used for establishing  hotels and whose
              repayment sources are anchored in long-term  financing  agreements
              with  financial  institutions,  have been  included  as  long-term
              liabilities,   with  related  repayment   schedules   included  in
              accordance  with those of the  corresponding  long-term  loans, as
              stipulated in the relevant agreements with the financing bodies.

                                                                              17
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES  (CONT'D)

L.        INCOME TAXES

          Deferred  taxes are  calculated  in respect of  temporary  differences
          between income and expenses  included in the financial  statements and
          for tax purposes,  in respect of the  difference  between the adjusted
          value of  non-monetary  depreciable  assets (except for buildings) and
          the  amount  allowed  for tax  purposes,  as well as in respect of tax
          losses carried  forward.  Deferred taxes are computed based on the tax
          rates  expected to be in effect when they are realized,  to the extent
          they are  known at the  financial  statements  preparation  date.  The
          Company  provides a valuation  allowance to reduce deferred tax assets
          to their estimated realizable value.

          The  deferred  taxes  do not  include  taxes  which  would  have  been
          applicable  in  case  of  future   realization   of   investments   in
          consolidated subsidiaries, or upon the receipt of retained earnings as
          dividends,  since for some, the receipt of dividends  and/or  earnings
          arising from their sale is  tax-exempt  and, for others,  management's
          policy is not to sell and/or  distribute  earnings as a dividend or in
          any other  manner in the  foreseeable  future in a manner  that  would
          create a material additional tax liability for the Company.

M.        REVENUE RECOGNITION

          -    Revenue from hotel operations - is recognized upon performance of
               the service.
          -    Revenues from  contractual work - are reported by the "percentage
               of completion"  method,  in accordance with Standard No. 4 of the
               Israeli   Accounting   Standards   Board.   The  completion  rate
               determined by the  proportion of the costs  incurred to the total
               estimated  cost,  based on an  evaluation  made by the  Company's
               engineers.  The cost of long-term  projects in progress  includes
               direct costs and the allocated indirect expenses.  Differences in
               estimates   emerging  at  the  stage  of  invoice  approving  are
               reflected in the year  determined.  Expected  losses are provided
               for in full.
          -    Revenue from the sale of sub-assemblies included in discontinuing
               operation - was recognized upon shipment.  Provisions for related
               product and systems warranties were computed on the basis of past
               experience.

 N.       CAPITALIZATION OF FINANCE COSTS

          The Company  capitalizes  borrowing  costs in accordance with Standard
          No. 3 of the Israeli  Accounting  Standards Board;  accordingly,  both
          specific and non-specific borrowing costs are capitalized to qualified
          assets  (assets  in  preparation  or  under  construction  not  yet in
          designated  use and whose  preparation  for this  purpose  requires  a
          prolonged   period  of  time).   Non-specific   borrowing   costs  are
          capitalized to these qualified  assets or to that portion not financed
          by that  specific  borrowing by using a rate  constituting  a weighted
          average of the  expenses in respect of the Company  borrowing  sources
          not specifically capitalized.

O.        EARNINGS (LOSS) PER SHARE

          Earnings  (loss)  per share  have been  computed  in  accordance  with
          Opinion No. 55 of the Institute based on the weighted - average number
          of paid-up  shares  outstanding  during the year. The number of shares
          used for the  computation of basic earnings (loss) per share take into
          account  options or other  rights to shares  (including  shares  which
          issued against  non-recourse loans), in respect of which a realization
          may  reasonably be assumed.  Fully diluted  earnings  (loss) per share
          take into account  securities  excluded from the basic earnings (loss)
          per share computation if their effect is dilutive.  Net income used in
          the  computation  of earnings  (loss) per share has been  adjusted for
          "notional  interest"  resulting  out of such option or other rights to
          shares exercised, whereas these securities had been taken into account
          in the number of shares.

                                                                              18
<PAGE>

                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES  (CONT'D)

P.        DIVIDEND

          Cash dividend paid to directors and employee'  incentive shares during
          the  term  of a  non-recourse  loan  is  accounted  for as  additional
          compensation cost, and charge to the statement of operation.

Q.        FINANCIAL INSTRUMENTS

          The fair values of financial  instruments  (bank deposits,  marketable
          securities, long-term liabilities and other working capital items) are
          principally  determined by Management  based upon the present value of
          the  expected  cash  flows  from  their  realization,   which  do  not
          materially differ from their book value. The financial instruments are
          presented in the  financial  statements  at their book value as of the
          balance  sheet  date.  Financial  instruments  which their book value,
          differ from the fair value are presented in Note 30.

R.        DERIVATIVE FINANCIAL INSTRUMENTS

          Derivative financial instruments not held for hedging are stated at an
          estimate of their fair value.  Changes in their fair value  during the
          reporting period are included in the statement of operations.

S.        PRESENTATION OF TRANSACTIONS BETWEEN THE  COMPANY AND THE  CONTROLLING
          SHAREHOLDER

          Investments in investees, acquired from companies that are controlling
          shareholders of the Company,  are included according to their adjusted
          value on the books of the transferring  companies immediately prior to
          acquisition,   in   accordance   with   the   Securities   Regulations
          (Presentation  of  Transactions  Between a Company and its Controlling
          Party in the Financial  Statements),  1996. The difference between the
          price  paid for that  investment  and the  transferor's  book value is
          recorded directly to shareholders' equity.

T.        RISKS AND UNCERTAINTY ASSOCIATED WITH THE USE OF ESTIMATES

          The  preparation of financial  statements in conformity with generally
          accepted   accounting   principles   requires   of  Group   companies'
          managements to make estimates and  assumptions  affecting the reported
          balance-sheet  amounts of assets and liabilities.  These estimates and
          assumptions   also  affect   disclosure  of   contingent   assets  and
          liabilities at the issuance date of the financial statements,  and the
          reported  amounts  of  revenues  and  expenses  during  the  reporting
          periods.  Actual  data and  operating  results  may differ  from these
          estimates.

U.        DISCONTINUING SEGMENT

          Discontinued  segment is  disclosed  according  to Israeli  Accounting
          Standard No. 8, regarding discontinued operations.

V.        SEGMENT REPORTING

          Segment  reporting  is  disclosed   according  to  Israeli  Accounting
          Standard  No. 11. The standard  requires  disclosure  about  operating
          segments  and  geographic  segments,  the  standard  defines  specific
          guidance for identifying the segments.

                                                                              19
<PAGE>

                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

W.        IMPAIRMENT OF LONG-LIVED  ASSETS  AND INVESTMENTS

          The Company examines the need for a computation of assets  impairment,
          based on the future non-discontinued cash flows anticipated from using
          the assets,  according to the practice acceptable in Israel,  which is
          based  on  the  American  standard  SFAS  121,   "Accounting  for  the
          Impairment of Long-Lived  Assets and Long-Lived  Assets to be disposed
          of."  However,  according  to  the  provisions  of  Opinion  68 of the
          Institute of Certified Public Accountants in Israel ("Opinion 68"), if
          there is a decline in the fair value (not of a temporary nature) of an
          investment  in  an  investee  company  (including   subsidiaries),   a
          provision  for the  decline  in value  is  provided.  If the  investee
          company is a foreign  autonomous  entity  the  provision  provided  is
          charged  directly  against any credit  balance of  cumulative  foreign
          currency  translation  adjustment,  previously  recorded in respect of
          this  investment  . The  excess  of the  required  provision  over the
          balance of the cumulative foreign currency  translation  adjustment is
          charged to the statement of  operations.  The provision  provided,  is
          attributed, in the consolidated financial statement of the Company, to
          the subsidiary's assets value. See also sub section X.3. Below

X.        IMPLEMENTATION OF RECENTLY ISSUED ACCOUNTING STANDARDS

          1. In July 2001,  the Israel  Accounting  Standard Board ("The Board")
             published the following two Standards:

          (a)  Accounting  Standard No. 12 -  Discontinuance  of  Adjustment  of
               Financial Statements.  Pursuant to this standard,  the adjustment
               of  financial  statements  was to have  been  discontinued  as of
               January  1,  2003.  In  December  2002,  the  Israel   Accounting
               Standards  Board  published  Standard No. 17 which  postponed the
               implementation   of  Standard  No.  12  until  January  1,  2004.
               Therefore,  the  adjustment of the financial  statements  will be
               discontinued as of January 1, 2004.

               The Company will continue preparing adjusted financial statements
               in  accordance  with  Opinion 36 of the  Institute  of  Certified
               Public  Accountants  in  Israel  until  December  31,  2003.  The
               adjusted amounts to be included in the financial statements as of
               December  31, 2003 will  constitute  the  starting  point for the
               nominal financial statements as of January 1, 2004.

          (b)  Accounting  Standard  No.13 - Effect of  Changes  in the Rates of
               Exchange  of  Foreign   Currency.   This   standard   deals  with
               translation of transactions  in foreign  currency and translation
               of financial  statements of outside activities for the purpose of
               their  inclusion in the  financial  statements  of the  reporting
               entity,  and supersedes the provisions of  Clarifications 8 and 9
               to  Opinion  36 which  will be  discontinued  upon the entry into
               effect of Accounting Standard No. 12 described above.

               Implementation  of  Standards  No.  12  and  No.  13  may  have a
               significant  effect on the Company's  financial  statements.  The
               extent of the effect will depend upon the rate of inflation,  the
               changes in the exchange rate,  the  composition of the assets and
               the Company's sources of financing.

          2.   In August 2002, The Board published  accounting Standard No. 14 -
               Financial Reports for Interim Periods.  The standard provides the
               minimum  content  of  financial   reports  for  interim  periods,
               including  the  required  disclosures  in the  notes,  and  also,
               details the  accounting  rules for  recognition  and  measurement
               which are to be  applied in interim  financial  statements.  This
               accounting  standard applies to financial  statements for periods
               beginning on January 1, 2003.

                                                                              20
<PAGE>

                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

X.        IMPLEMENTATION OF RECENTLY ISSUED ACCOUNTING STANDARDS (CONT'D)

          The  restatement of comparative  figures for interim  periods prior to
          the effective date of the standard in not required.  Nevertheless,  if
          the financial statements include comparative figures for prior interim
          periods,  which are not in accordance with the terms of this standard,
          the main differences between the guidelines in this standard and those
          reflected in the  comparative  figures should be included in the notes
          to the  financial  statements.  At this stage,  it is not  possible to
          estimate  the  effects  of  this  standard  on the  interim  financial
          statements.

          3.   In  February  2003,  the  Israeli   Accounting   Standards  Board
               published  Accounting  Standard  No. 15 - Decline in the Value of
               Assets.  The standard  provides  procedures  which a company must
               apply in order to  ensure  that its  assets  in the  consolidated
               balance sheet,  are not presented at an amount which is in excess
               of  their  recoverable  value,  which  is the  higher  of the net
               selling price or the present  value of the estimated  future cash
               flows  expected to be derived from use and disposal of the asset.
               In addition,  the standard  provides rules for  presentation  and
               disclosure with respect to assets whose value has declined.

               The  Standard   applies  to  financial   statements  for  periods
               beginning  January 1, 2003.  The standard  provides  that in most
               cases the transition  will be effected by means of the "from here
               on" method, however a loss from decline in value of an assets, in
               the  amount  of the  difference  between  the  book  value on the
               commencement  date of the standard and the recoverable  amount as
               at that date,  shall be charged to the statement of operations in
               the  category  "cumulative  effect as at beginning of the year of
               change in  accounting  method"  if and only if, the said loss was
               not  recognized  in the past  solely due to the fact that the net
               non-discounted  future  cash  flows were  greater  than the books
               value.  When this standard  becomes  effective the  provisions of
               Opinion 68 of the Institute of Certified  Public  Accountants  in
               Israel will change,  so that if there is a decline in value of an
               investment  in  an  autonomous  foreign  investee,   the  capital
               reserves from foreign currency  translation  adjustments will not
               be posted to the statement of operations  when an impairment loss
               is recognized (see Note 2.W).

               The companies in the Group are examining the recoverable value of
               certain assets owned by them and the  consequence of implementing
               for the first time the  provision  of the Standard on the results
               of their operations for the first quarter of 2003.  Nevertheless,
               the companies'  managements estimate at the time of approving the
               financial  statements,  that no  provisions  for a decline in the
               value of the assets / investments for significant  amounts in the
               first  quarter of 2003 is required and  therefore no  significant
               costs in the statement of operations  for that period will result
               due to the implementation for the first time of this Standard.

Y.        RATE OF EXCHANGE AND LINKAGE BASE

          Assets and  liabilities  in foreign  currency  or linked  thereto  are
          stated  on  the  basis  of  the  exchange   rate   prevailing  on  the
          balance-sheet  date.  Balances linked to various indices are stated on
          the basis of the  contractual  linkage  terms of each linked  asset or
          liability.

                                                                              21
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONT'D)

Y.        RATE OF EXCHANGE AND LINKAGE BASE (CONT'D)

         (1)      Following are details of  consumer-price  indices and exchange
                  rates of foreign  currencies of countries in which the Company
                  is active:
<TABLE>
<CAPTION>

                                                                                             DECEMBER 31
                                                                                             -----------
                                                                                         2002            2001
                                                                                         ----            ----
                  CPI - IN POINTS
                  ---------------

<S>                                                                                      <C>            <C>
                  Holland                                                                121.2          117.4
                  Hungary                                                                408.6          389.2
                  England                                                                178.5          173.4
                  Belgium                                                                111.0          109.6
                  Romania                                                                153.5          130.3
                  Israel                                                                 115.1          108.1

                  NIS EXCHANGE RATE
                  -----------------
                  U.S.$                                                                  4.737          4.416
                  Pound Sterling                                                         7.633          6.400
                  Euro                                                                   4.970          3.907
                  1000 Hungarian forint                                                 21.066         15.860
                  1000 Romanian Lei                                                      0.142          0.140
</TABLE>


         (2)      Following  are details of the changes in the CPI and the
                  exchange  rates of foreign  currencies  in the  countries in
                  which the Company is active (in %):
<TABLE>
<CAPTION>

                                                                               YEAR ENDED DECEMBER 31
                                                                               ----------------------
                                                                       2002             2001           2000
                                                                       ----             ----           ----
                                                                         %               %               %
                                                                         -               -                -
<S>                                                                   <C>              <C>             <C>
                  Israeli CPI                                         6.49             1.41            0.00
                  U.S.$ exchange rate                                 7.27             9.28           (2.70)


                                                                               YEAR ENDED DECEMBER 31
                                                                               ----------------------
                                                                       2002             2001            2000
                                                                       ----             ----            ----
                                                                         %               %                %
                                                                         -               -                -
                                                                                   CHANGES IN THE CPI
                                                                                   ------------------
                  Holland                                             3.24             4.45            2.89
                  England                                             2.94             1.28            2.33
                  Belgium                                             1.37             2.18            2.49
                  Hungary                                             5.00             6.90           10.13
                  Romania                                             17.80           30.30

                                                                              CHANGES IN NIS EXCHANGE RATE
                                                                              ----------------------------

                  Pound sterling                                       19.27            6.10          (10.12)
                  Euro                                                 27.18            3.84           (9.87)
                  Hungarian forint                                     32.82           11.70          (13.41)
                  Romanian Lei                                         1.43           (11.40)
</TABLE>

                                                                              22
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 3 - CASH AND CASH EQUIVALENTS

<TABLE>
<CAPTION>

Consist of the following:
                                                                                          DECEMBER 31,      DECEMBER 31,
                                                                                          ------------      ------------
                                                                                                  2002              2001
                                                                                           ADJUSTED NIS (THOUSANDS)
                                                                                           ------------------------
<S>                                                                                             <C>              <C>
In Israeli currency (i)                                                                          8,617            26,072
In foreign currencies (ii)                                                                      84,335           267,836
                                                                                                ------           -------
                                                                                                92,952           293,908
                                                                                                ======           =======

(i) Bearing interest of 7.2%-8.4%.

(ii) Mainly in U.S.$, bearing interest of 0.3%-2.5%.

NOTE 4 - SHORT-TERM INVESTMENTS AND DEPOSITS

Consist of the following:
                                                                                          DECEMBER 31,      DECEMBER 31,
                                                                                          ------------      ------------
                                                                                                  2002              2001
                                                                                           ADJUSTED NIS (THOUSANDS)
                                                                                           ------------------------

Deposits in banks (i)                                                                          155,362            86,108
Current maturities of long-term bank deposits                                                        -            65,839
Marketable securities                                                                            2,143             2,696
Others                                                                                               -                32
                                                                                               -------           -------
                                                                                               157,505           154,675
                                                                                               =======           =======

(i)      Mainly in U.S.$, bearing interest of 0.7% - 1.4%.


Regarding pledging, see Note 20.

NOTE 5 - ACCOUNTS RECEIVABLE - TRADE, NET

Consist of the following:
                                                                                          DECEMBER 31,      DECEMBER 31,
                                                                                                  2002              2001
                                                                                          ------------      ------------
                                                                                             ADJUSTED NIS (THOUSANDS)
                                                                                             ------------------------

 Accounts receivable                                                                          24,029            18,846
 Allowance for doubtful debts                                                                 (5,025)           (4,045)
                                                                                              ------            ------
                                                                                              19,004            14,801
                                                                                             =======           =======
</TABLE>
                                                                              23
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 6 - OTHER ACCOUNTS RECEIVABLE AND PREPAID EXPENSES

Consist of the following:
<TABLE>
<CAPTION>

                                                                                          DECEMBER 31,      DECEMBER 31,
                                                                                                  2002              2001
                                                                                          ------------      ------------
                                                                                             ADJUSTED NIS (THOUSANDS)
                                                                                          ------------------------------
<S>                                                                                             <C>               <C>
 Government institutions                                                                         6,946             6,043
 Related parties                                                                                 5,737             7,391
 Prepaid expenses                                                                                3,517             1,933
 Advances to suppliers                                                                             474                54
 Accrued interest                                                                                  129               308
 Sundry                                                                                          4,954             5,597
                                                                                                ------            ------
                                                                                                21,757            21,326
                                                                                                ======            ======

NOTE 7 - INVESTMENTS, LOANS AND LONG TERM RECEIVABLES, NET

 Consist of the following:

                                                                                          DECEMBER 31,      DECEMBER 31,
                                                                                                  2002              2001
                                                                                          ------------      ------------
                                                                                             ADJUSTED NIS (THOUSANDS)
                                                                                          ------------------------------

 Deposits in banks (i)                                                                         265,703           332,439
 Long-term loans receivable (ii)                                                                40,997            40,085
 Accounts receivables - trade                                                                      864               882
                                                                                               -------           -------
                                                                                               307,564           373,406
 Investment in parent company marketable securities - at cost                                   41,064            41,064
 Investment in shares - at cost                                                                  3,684             3,684
 Deffered income taxes                                                                          11,097            10,216
 Others                                                                                            270                 -
                                                                                               -------           -------
                                                                                               363,679           428,370
 Less: Current maturities                                                                            -           (65,839)
 Less: Allowance for doubtful debts of loans receivable                                        (11,199)           (4,541)
                                                                                               -------           -------
                                                                                               352,480           357,990
                                                                                               =======           =======
</TABLE>

(i)      Mainly in U.S.$, bearing interest of 1.43%.

         Deposits  pledged as security for the  repayment  of loans  obtained by
         Group companies and/or to secure  guarantees  provided by them in favor
         of third  parties have been  included as amounts due  concurrent to the
         loan  repayment  dates or release of guarantees for which they had been
         pledged.

(ii)     The long-term loans receivable consist of the following:

          a)  Loan to a formerly affiliated company, stated at present value, in
              the amount of NIS 13,605 thousands (2001 - NIS 11,810  thousands),
              linked to the Israeli CPI and bearing no interest. The loan should
              be repaid out of the formerly affiliated company profits,  but not
              later then October 30, 2005.

          b)  Loans to the management  company or companies under its control. A
              loan in the  amount  of NIS 7,901  thousand  will be linked to the
              dollar,  bear  annual  interest  at the  rate of  Libor+1%  and be
              repayable on December 31, 2006. A loan in the amount of NIS 15,699
              thousand is  exercisable  into shares  (see Note  20.A.6).  In the
              event that B.H.  decides not to exercise  the option the  linkage,
              interest and  repayment  terms  described  above will apply to the
              loan.  Amounts  payable  to the  management  company  by the Group
              companies  with  respect to its rights in their  hotels  (see Note
              19.C),  except for management fees of the hotels (see Note 20.A.7)
              will serve as security for  repayment  of the loans.  B.H. did not
              receive any additional  security in respect of the above mentioned
              loans.

                                                                              24
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 7 -  INVESTMENTS, LOANS AND LONG TERM RECEIVABLES, NET (CONT'D)

          c) Other loans in the amount of NIS 3,792  thousands (2001 - NIS 4,651
             thousands).

(iii)    The aggregate maturities as of December 31, 2002, are as follows:

                                                                 ADJUSTED NIS
                                                                 (THOUSANDS)
                                                                 ------------
        2003                                                               -
        2004                                                           1,500
        2005                                                          13,823
        2006                                                             234
        2007                                                           8,151
        With no maturity date                                        283,856
                                                                     -------
                                                                     307,564
                                                                     =======

NOTE 8 - INVESTMENTS IN AFFILIATED COMPANY

         Consist of the following:

<TABLE>
<CAPTION>
                                                                                          DECEMBER 31,      DECEMBER 31,
                                                                                                  2002              2001
                                                                                          ------------      ------------
                                                                                              ADJUSTED NIS (THOUSANDS)
                                                                                          ------------------------------
<S>                                                                                           <C>
          Cost of shares                                                                      35,734                  -
          Equity in net loss                                                                  (2,902)                 -
          Foreign currency translations                                                         (322)                 -
                                                                                              ------             ------
                                                                                              32,510                  -
                                                                                              ======             ======
          Goodwill, net of amortization, included above                                       15,618                  -
                                                                                              ======             ======

</TABLE>

         (1)  GAMIDA CELL LTD. (GAMIDA)

              The Company,  through a wholly owned subsidiary Elscint Biomedical
              ("Bio")  holds 37.1% of the  capital  and voting  rights in Gamida
              Cell Ltd.  ("Gamida") and the rights to appoint 25% of the members
              of its Board of Directors.

              Gamida is engaged in the development of technology for multiplying
              ("expansion")  of stem cells harvested from cord blood. The expand
              stem cells could  potentially be used for bone marrow  replacement
              for cancer patients,  for genetic  therapy,  and at a later stage,
              for the regeneration of organs and tissues.

              The  shares  held by Bio are  partly  ordinary  shares  and partly
              preffered  shares with  liquidation  preference and  anti-dilution
              rights.  Bio has options to be  exercised  by 2005,  to receive an
              additional 0.7% in  consideration  for U.S.$ 165 thousand.  Should
              all the securities of Gamida in  circulation  be exercised,  Bio's
              share in Gamida will decline to 33.6%.

              Subsequent to the balance sheet date Gamida signed a memorandum of
              understanding  with Teva  Pharmaceuticals  Ltd.  ("Teva"),  in the
              framework  of which Teva will  invest an amount of U.S.$ 3 million
              in Gamida  against an  allotment  of shares in it at a rate of 9%.
              Implementation  of the investment is subject to signing a detailed
              agreement between the parties.

              In  addition,   Gamida   signed  an   additional   memorandum   of
              understanding  with Teva, in the framework of which Teva was given
              an option for future  cooperation with Gamida,  with regard to the
              technology  that Gamida is  developing,  and subject to conditions
              agreed between the parties.

         (2) The Company held 49% in Gilbridge Holding Ltd. until October 2001.

                                                                              25
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 9 - VENTURE - CAPITAL INVESTMENTS

(1)    CONSIST OF THE FOLLOWING:

<TABLE>
<CAPTION>
                                                                                      DECEMBER 31,        DECEMBER 31,
                                                                                              2002                2001
                                                                                      ------------        ------------
                                                                                            ADJUSTED NIS (THOUSANDS)
                                                                                      --------------------------------

<S>                                                                                           <C>             <C>
          Investment in Gamida Cell Ltd.                                                        -              27,845
          Loans to venture - capital investee                                                   -               1,294
          Others                                                                                -                 379
                                                                                      ------------        ------------
                                                                                                -              29,518
                                                                                      ============        ============
</TABLE>

(2)    Elscint Biomedical Ltd., a wholly owned subsidiary, ("Bio") was connected
       with a company  controlled by the former CEO ("the CEO"), in an agreement
       in the context of which the CEO was entitled to shares which represent 2%
       of the issued and paid-up capital of Bio, in consideration  for their par
       value. Moreover, it was stipulated that investments in venture capital of
       Bio will be effected in such a way that Bio will invest 92% and the CEO -
       8%. To finance  his  investment,  Bio will  provide a  non-recourse  loan
       bearing interest at a rate of Libor + 1%.

       In the fourth  quarter of 2002 Bio and the CEO  terminated the employment
       agreement  between them. In the framework of  terminating  the agreement,
       the Company  purchased  the CEO's rights in Bio and  purchased  the CEO's
       rights in the venture capital  investments owned by him, in consideration
       for repaying the loans that Bio provided him for their acquisition.

       Concurrently  with  terminating the employment  agreement,  the Company's
       management   temporarily   postpone   implementation  of  the  additional
       investments in their  biotechnology  field through Bio. As a result,  the
       Company's  management  estimates  that in accordance  with the extent and
       nature of the present operations,  Bio in practice lost at this stage its
       status  as a venture  capital  fund.  Accordingly,  it  classified  Bio's
       investment in Gamida - as an investment in an affiliated company, and its
       investments in loans to other venture capital  investments - as long-term
       receivables.

(3) See also Note 8(1).

                                                                              26
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 10 - FIXED ASSETS, NET
A. Consist of the following:

<TABLE>
<CAPTION>
                                                       LANDS AND BUILDINGS
                                        ---------------------------------------------------
                                                  HOTELS
                                        --------------------------
                                                         UNDER      COMMERCIAL                 LEASEHOLD
                                          ACTIVE *    CONSTRUCTION    CENTER       OTHERS     IMPROVEMENTS   SUNDRY        TOTAL
                                        -----------   ------------  ----------   ----------   ------------  ---------    ----------
                                                                          ADJUSTED NIS (THOUSANDS)

COST
<S>                                       <C>             <C>          <C>           <C>           <C>          <C>       <C>
Balance at beginning of year **           1,005,611       101,478      334,720       24,782        1,717        6,161     1,474,469
Additions during the year                     5,248        46,849      117,053            -           73          336       169,559
Foreign currency translation adjustments    166,014        22,362            -            -            -            -       188,376
Sales and disposals during the year          (1,980)            -            -            -         (278)      (1,562)       (3,820)
                                        -----------   ------------  ----------   ----------   ------------  ---------    ----------
Balance at end of year (i) (ii)           1,174,893       170,689      451,773       24,782        1,512        4,935     1,828,584
                                        -----------   ------------  ----------   ----------   ------------  ---------    ----------


ACCUMULATED DEPRECIATION AND
AMORTIZATION

Balance at beginning of year **             110,236             -            -        1,826          480        2,057       114,599
Additions during the year                    31,372             -            -          725          153          781        33,031
Impairment (iii)                             23,153         4,400                         -            -            -        27,553
Foreign currency translation adjustment      18,990             -            -            -            -            -        18,990
Sales and disposals during the year          (1,512)            -            -            -         (304)      (1,429)       (3,245)
                                        -----------   ------------  ----------   ----------   ------------  ---------    ----------
Balance at end of year                      182,239         4,400            -        2,551          329        1,409       190,928
                                        -----------   ------------  ----------   ----------   ------------  ---------    ----------
NET BALANCE AT DECEMBER 31, 2002            992,654       166,289      451,773       22,231        1,183        3,526     1,637,656
                                        ===========   ============  ==========   ==========   ============  =========    ==========
NET BALANCE AT DECEMBER 31, 2001 **         895,375       101,478      334,720       22,956        1,237        4,104     1,359,870
                                        ===========   ============  ==========   ==========   ============  =========    ==========

</TABLE>

*     Including operating systems.
**    Reclassified.
(i)   Including  financial  expenses  capitalized  to land and  building  in the
      amount of NIS 102,788 thousands (2001 - NIS 75,952 thousands).
(ii)  Net of subsidy in  respect  of  investment  in Hotels in the amount of NIS
      5,366 thousands.
(iii) See Note 19.C.8.


                                                                              28
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 10 - FIXED ASSETS, NET (CONT'D)

B.   Composition of lands and buildings, classified between ownership and
     leasing rights:

<TABLE>
<CAPTION>
                                                                                    CONSOLIDATED
                                                               --------------------------------------------------------
                                                                                   DECEMBER 31, 2002
                                                               --------------------------------------------------------
                                                                               COMMERCIAL
                                                                               CENTER IN
                                                                  HOTELS       ISRAEL (2)        OTHERS         TOTAL
                                                               ------------    ----------      ---------     ----------
                                                                                 ADJUSTED NIS (THOUSANDS)
                                                               --------------------------------------------------------
<S>                                                              <C>            <C>               <C>          <C>
       Ownership (1)                                                911,576             -         22,231       945,734
       Leasing rights (1)                                           247,367       451,773              -       703,540
                                                               ------------    ----------      ---------     ----------
                                                                  1,158,943       451,773         22,231     1,649,274
                                                               ============    ==========      =========     ==========
</TABLE>

     (1)  The rights are mostly recorded in the name of consolidated
          subsidiaries, which own the rights in the land and, in part, are
          undergoing various registration proceedings.

     (2)  The leasing period extends over 49 years plus a renewal option for an
          identical period, ending in 2086 and subject to the lessee's
          fulfillment of the terms of the lease.

  C. During 2002, the Company wrote off fully  depreciated  assets  amounting to
NIS 1,562 thousand.

  D. Investments in long term leasing rights in Ma'alot - see Note 20.A.2.

  E. Annual depreciation rates - see Note 2.I.

  F. See Note 20 for information relating to the pledging of fixed assets.


                                                                              29
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 11 - OTHER ASSETS, NET

Consist of the following:
<TABLE>
<CAPTION>
                                                                                                  NET BALANCES AS OF
                                                                                             ----------------------------
                                                                        ACCUMULATED      DECEMBER 31,       DECEMBER 31,
                                                          COST         AMORTIZATION              2002               2001
                                                       ----------      ------------      ------------       ------------

                                                                              ADJUSTED NIS (THOUSANDS)
                                                       ------------------------------------------------------------------
<S>                                                       <C>                 <C>               <C>                <C>
Pre-opening hotel expenses                                12,383              6,355             6,028              7,976
Expenses for obtaining loans                                 851                851                 -                253
Project development costs                                  3,981              1,683             2,298              3,227
Cost of obtaining long term leases                         3,908                  -             3,908                471
                                                       ----------      -------------     -------------      -------------
                                                          21,123              8,889            12,234             11,927
                                                       ==========      =============     =============      =============

</TABLE>

NOTE 12 - SHORT-TERM CREDITS

Consist of the following:
<TABLE>
<CAPTION>
                                                                         DECEMBER 31, 2002
                                           -------------------------------------------------------------------------------
LINKAGE BASE                               NIS (UNLINKED)        U.S.$           EURO         POUND STERLING       TOTAL
                                           --------------      ---------      ----------      --------------   -----------
INTEREST RATE                                    9%            2.5%-3.8%         5.5%             6.4%-7%
                                           --------------      ---------      ----------      --------------
                                                                      ADJUSTED NIS (THOUSANDS)
                                           -------------------------------------------------------------------------------
<S>                                                    <C>       <C>             <C>                 <C>        <C>
Credit from banks                                      20        49,263          174,323             80,583     304,189
Short-term loans                                    9,206       133,494                -             67,353     210,053
                                           --------------      ---------      ----------      --------------   -----------
                                                    9,226       182,757          174,323            147,936     514,242
                                           --------------      ---------      ----------      --------------
Current maturities of
  long-term debts                                                                                                18,032
                                                                                                               -----------
                                                                                                                532,274
                                                                                                               ===========

                                                                         DECEMBER 31, 2002
                                           -------------------------------------------------------------------------------
LINKAGE BASE                               NIS (UNLINKED)        U.S.$           EURO         POUND STERLING       TOTAL
                                           --------------      ---------      ----------      --------------   -----------
INTEREST RATE                                    11%           2.7%-4.4%         5.9%           5.6%-6.3%
                                           --------------      ---------      ----------      --------------
                                                                      ADJUSTED NIS (THOUSANDS)
                                           -------------------------------------------------------------------------------
Credit from banks                                    367              -            1,937            2,939          5,243
Short-term loans                                       -         48,545          146,222          105,088        299,855
                                           --------------      ---------      ----------      --------------   -----------
                                                     367         48,545          148,159          108,027        305,098
                                           --------------      ---------      ----------      --------------
Current maturities of
  long-term debts                                                                                                141,840
                                                                                                               -----------
                                                                                                                 446,938
                                                                                                               ===========
Regarding pledging, see Note 20.

</TABLE>


                                                                              30
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 13 - ACCRUED LIABILITIES

Consist of the following:
<TABLE>
<CAPTION>
                                                                                           DECEMBER 31,      DECEMBER 31,
                                                                                                   2002              2001
                                                                                           ------------      ------------
                                                                                              ADJUSTED NIS (THOUSANDS)
                                                                                           ------------------------------
<S>                                                                                              <C>              <C>
         Employees                                                                               8,955            12,182
         Institutions                                                                           10,540             4,668
         Accrued liabilities in respect of purchase of fixed assets                             37,991             7,407
         Accrued expenses                                                                       21,904            18,120
         Related parties                                                                         5,163             2,779
         Others                                                                                  2,600             3,486
                                                                                           ------------      ------------
                                                                                                87,153            48,642
                                                                                           ============      ============
</TABLE>




NOTE 14 - ADVANCE FROM CUSTOMER IN RESPECT OF PROJECT IN PROGRESS, NET

Consist of the following:
<TABLE>
<CAPTION>
                                                                                           DECEMBER 31,      DECEMBER 31,
                                                                                                   2002              2001
                                                                                           ------------      ------------
                                                                                              ADJUSTED NIS (THOUSANDS)
                                                                                           ------------------------------

<S>                                                                                            <C>                <C>
Advance                                                                                        32,120             32,120
Amount charged to the statements of operations                                                 32,120             30,582
                                                                                           ------------      ------------
                                                                                                    -              1,538
                                                                                           ============      ============

</TABLE>





                                                                              31
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 15 - LONG-TERM DEBTS

A.       CONSIST OF THE FOLLOWING:

<TABLE>
<CAPTION>
                                                                                           DECEMBER 31,         DECEMBER 31,
                                                                                                   2002                 2001
                                                                                           ------------         ------------
                                                                                                ADJUSTED NIS (THOUSANDS)
                                                                                           ---------------------------------

<S>                                                                                             <C>                 <C>
         Loans from banks and financial institutions (i)                                        643,759             730,605
         Accounts payable                                                                             -              11,867
         Lease commitments                                                                           14                 666
         Deposit from renters (ii)                                                                2,122                  35
                                                                                           ------------         ------------

         Total                                                                                  645,895             743,173
         Less current maturities                                                                 18,032             141,840
                                                                                           ------------         ------------

                                                                                                627,863             601,333
                                                                                           ============         ============
</TABLE>

         (i) Linkage base and interest rates as of December 31, 2002:

<TABLE>
<CAPTION>
                                                                                                                ADJUSTED NIS
                  LINKAGE BASE                                                           INTEREST RATES %         (THOUSAND)
                  ------------                                                           ----------------       ------------

<S>                   <C>                                                                                           <C>
                  U.S.$                                                                             1.43%           260,535
                  EURO                                                                               4.9%           110,325
                  Pound Sterling                                                     LIBOR + 1.25% - 1.4%           269,373
                  S.A. Rand                                                                    PRIME - 1%             3,526
                                                                                                                ------------
                                                                                                                    643,759
                                                                                                                ============
</TABLE>

         (ii) See Note 20.A.3.

B. The aggregate  maturities of long-term  debt as of December 31, 2002,  are as
follows:

                                                     ADJUSTED NIS
                                                     (THOUSANDS)
                                                   ----------------
         2003                                               18,032
         2004                                               17,976
         2005                                               18,324
         2006                                               18,598
         Thereafter                                        312,430
         Undetermined (i)                                  260,535
                                                   ----------------
                                                           645,895
                                                   ================

     (i)  Including a bank loan of NIS 261 million which the Company placed a
          deposit of equal amount as security. The bank agreed to refrain from
          any repayment demand so long as a deposit of an identical amount
          secures the loan.

C. Pledging - see Note 20.


                                                                              32
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 16 - LIABILITY FOR EMPLOYEE SEVERANCE BENEFITS, NET

A.       IN ISRAEL:
         The liability of the Group companies for pension  contribution plan and
         severance pay are covered mostly by current deposits to accounts on the
         employees' behalf at recognized pension and severance-pay  funds and/or
         by acquiring policies from insurance companies.  These deposits are not
         under the custody of management of the Group companies and,  therefore,
         not  reflected  in  the  balance  sheet.  The  liability  for  employee
         severance benefits included in the balance sheet represents the balance
         of the liability  not covered by the  above-mentioned  deposits  and/or
         insurance policies.

B.       ABROAD:
         A liability of foreign  consolidated  subsidiaries for severance pay to
         their  employees,  pursuant to the laws of the countries in which these
         companies  reside and the labor  agreements  in effect,  is  ordinarily
         covered by current payments to government  agencies with respect to the
         voluntary  or  involuntary  termination  of  employment,  as well as by
         regular payments to insurance companies for pension benefits and by the
         balance-sheet accrual.

NOTE 17 - SHARE CAPITAL

A.       SHARE CAPITAL

         Consist of the following:

<TABLE>
<CAPTION>
                                                 DECEMBER 31, 2002                             DECEMBER 31, 2001
                                    ---------------------------------------------  ------------------------------------------
                                      AUTHORIZED        ISSUED *     OUTSTANDING     AUTHORIZED     ISSUED**    OUTSTANDING
                                    -------------     -----------   -------------  --------------  ----------  --------------

<S>                                  <C>               <C>             <C>             <C>         <C>            <C>
         Number of ordinary
          shares of NIS 0.05
          par value                  24,000,000        17,424,643      16,690,643      24,000,000  17,468,143     16,690,643
                                    =============     ===========   =============  ==============  ==========  ==============
</TABLE>


          *    Net of 68,500 incentive shares which were returned to pool.
          **   Net of 25,000 incentive shares which were returned to pool.

B.       INCENTIVE SHARES

         In October  2001,  the  Company  approved  an issuance of up to 850,000
         ordinary  shares   (constituting   5%  of  the  Company's   issued  and
         outstanding shares) to directors and employees of the Company, and also
         employees  of the Europe  Israel  Group which  provide  services to the
         Company.
         On December 14, 2001 the Company granted,  through a trustee,  365,000,
         357,500 and 80,000 shares to directors of the Company, employees of the
         Company and employees of EIL  respectively.
         The vesting of the options will occur ratably over a two or three years
         period  (50% or 33% of the shares  will be  released at the end of each
         year) from the allotment date and subject to the recipients'  continued
         employment, however, immediate vesting will arise upon a termination of
         employment   entitling   the   recipient  to  severance   payment.   In
         consideration of each share, the recipients will pay an amount equal to
         the closing  price of the  Company's  shares on the last day of trading
         prior to issuance (NIS 15.65 per share).

         To finance  payment  of the  incentive  shares,  the  Company  lent the
         recipients an amount equal to the full acquisition price of the shares,
         bearing  interest at 6% per annum and repayable  after 5 years from the
         date of grant not eligible for early repayment.  This loan is presented
         offset from the  shareholders'  equity.  The shares will be used as the
         sole, non-recourse security for repayment of the loan.


                                                                              33
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 17 - SHARE CAPITAL  (CONT'D)

B.       INCENTIVE SHARES (CONT'D)

         Notwithstanding the foregoing,  should a recipient elect to transfer or
         to sell any portion of the offered shares vested, the recipient will be
         required to provide,  as security for payment of the loan,  an interest
         bearing deposit  equaling the portion of the outstanding  amount of the
         loan. Any tax resulting from the interest rate on the loan will be paid
         by the  Company.  However,  the Company  will not pay tax if imposed in
         respect of the  allotment  of these shares and their  eventual  sale to
         third parties.

         Each of the  recipients  shall have  voting  rights  only in respect of
         vested shares. In the event that the Company declares payment of a cash
         dividend, and on the record date for the payment of such cash dividend,
         offered  shares are held by the trustee for the  recipients  (including
         offered shares not yet vested),  then the Company shall transfer to the
         trustee,  in favor of the  recipients,  cash dividends in proportion to
         the  amounts  of  offered  shares  held by the  trustee in favor of the
         recipients, after withholding any applicable tax at source. The trustee
         shall transfer the cash  dividends to the recipients  pro-rata to their
         holdings,  regardless  as to whether their right to receive the offered
         shares has vested.

         Incentive shares activity during the year is as follows:

<TABLE>
<CAPTION>
                                                                               YEAR ENDED DECEMBER 31,
                                                                              2002                 2001
                                                                          ---------------    --------------
                                                                               NUMBER OF ORDINARY SHARES
                                                                          ---------------------------------

<S>                                                                              <C>              <C>
        Balance of incentive shares at beginning of year                         777,500                -
        Granted                                                                        -          802,500
        Returned to pool                                                         (43,500)         (25,000)
                                                                          ---------------    --------------

        Balance of incentive shares at end of year                               734,000          777,500
                                                                          ===============    ==============

        Vested                                                                   296,583                -
                                                                          ===============    ==============

        Not yet vested                                                           437,417          777,500
                                                                          ===============    ==============

</TABLE>

C.       As for the Company's commitment to maintain a minimal shareholders'
         equity - see Note 20.A.6.

NOTE 18 - INCOME TAXES

A.       The provision for income taxes (benefits) consist of the following:

                                            YEAR ENDED DECEMBER 31,
                                   -------------------------------------
                                         2002         2001          2000
                                   ----------    ---------     ---------
                                            ADJUSTED NIS (THOUSANDS)
                                   -------------------------------------

         Current                         446        4,831         3,311
         Deferred                     (5,765)         655         1,412
                                   ----------    ---------     ---------
                                      (5,321)       5,486         4,723
                                   ==========    =========     =========


                                                                              34
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 18 - INCOME TAXES (CONT'D)

B.       TAX LAWS  APPLICABLE  TO THE MAJOR GROUP  COMPANIES IN THEIR COUNTRY OF
         RESIDENCE

         (1)   ISRAEL

               a. The Company and its Israeli subsidiaries are subject to income
                  tax under the  provisions of the Income Tax Law  (Inflationary
                  Adjustments),  1985, which introduced the concept of measuring
                  results for tax  purposes on a real  basis,  according  to the
                  changes in the CPI.
                  The tax rate applying to companies in Israel - 36%.

               b. During the year 2002, tax reform  legislation was enacted with
                  effect from January1,  2003, which  significantly  changed the
                  taxation  basis of corporate and  individual  taxpayers from a
                  territorial  basis to a  worldwide  basis.  From  such date an
                  Israel resident  taxpayer will be taxed on income produced and
                  derived both in and out of Israel.  The main provisions of the
                  tax reform  that may affect the  Company  are as  follows:  1.
                  Changes  in  the  method  of  taxation  prevailing  in  Israel
                  regarding the revenues of foreign  companies  controlled (over
                  10%) by Israeli  residents  most of whose revenues are passive
                  revenues,  as  defined  in the law,  or most of whose  profits
                  result from passive  revenues,  The tax rate  applying to them
                  does not exceed  20%,  and over 50% of the means of control in
                  them are held,  directly or indirectly,  by Israeli  residents
                  ("C.F.C").  In accordance  with the provisions of the law, the
                  controlling  shareholder in such  companies  which have unpaid
                  profits, as defined in the law, will be seen as if it received
                  its  proportional  share in these  profits as a dividend,  and
                  income tax in Israel up to 25% will apply to them.

                  2.  Dividend  [received  in Israel]  whose  source is revenues
                      produced or accrued outside of Israel and a dividend whose
                      source is out of Israel,  will be taxed at a rate of up to
                      25%. In addition,  the law sets forth provisions regarding
                      amounts  and rates of tax,  in those  cases  where tax was
                      paid abroad on such revenues.

                  3.  As of  January  1, 2003 tax will apply on the income of an
                      Israeli  resident  even if they were  accrued or  produced
                      outside Israel.  Up to the end of 2002 an Israeli resident
                      was liable to tax on such  revenues  only if received [for
                      the first time] in Israel.

                  4.  As of January  1, 2003 the tax rate on capital  gains from
                      realizing assets was reduced to 25%. The reduced rate will
                      apply to  assets  realized  as from  January  1,  2003 and
                      thereafter  and will be  calculated as part of the profits
                      relating to the period  after that date and up to the date
                      of realization.

               c. Under the Law for the  Encouragement  of Capital  Investments,
                  1959, certain production  facilities of the Company related to
                  the  discontinuing   operation  have  been  granted  "Approved
                  Enterprise"  ("AE")  status.  Income  derived from such AE was
                  subject to reduced tax rates (up to 25%) for a period of up to
                  10 years,  beginning  with the year in which  each  enterprise
                  first  generates  taxable  income.  As the Company  sold,  the
                  Ma'alot facility, and substantially all of the assets thereof,
                  on December 31, 2002, the period of tax benefits under the law
                  for  the  Encouragement  of  Capital  Investments,   1959  was
                  expired.

                  The benefits  granted under these programs are contingent upon
                  the  fulfillment of the conditions  stipulated in the law, and
                  the regulations  there under and the approval  documents based
                  on which the  investment had been carried out. In the event of
                  failure to comply with these  conditions  the  benefits may be
                  cancelled, and the Company may be require to refund the amount
                  of benefits, previously received in whole or in part, with the
                  addition of linkage differences and interest.

                  A distribution  of cash dividends out of tax-exempt  income of
                  the AE would impose on the Company an additional tax of 25% in
                  respect of the amount distributed.

                  The said tax addition has not been included in these financial
                  statements  due  to  the  Group's  policy  to  avoid  dividend
                  distribution which may result in additional tax to the Group.


                                                                              35
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 18 - INCOME TAXES (CONT'D)

B.       TAX LAWS  APPLICABLE  TO THE MAJOR GROUP  COMPANIES IN THEIR COUNTRY OF
         RESIDENCE (CONT'D)

          (2) U.S.A

              a.  A non-U.S.  company may (under  certain  conditions) be deemed
                  for U.S. income tax purposes as a Passive  Foreign  Investment
                  Company  ("PFIC")  on the  basis of an  "income  test"  and an
                  "assets test", as determined by the IRS. Once so defined,  the
                  U.S.  shareholders may be subject to additional taxes upon the
                  distribution   of  earnings   or  assets   and/or  upon  their
                  realization of their holdings in such a defined company.  As a
                  result of  realizing  the  Company's  business  and in view of
                  entering into other fields of  activities,  the  management of
                  the  Company  estimates,  on  the  basis  of  advice  received
                  regarding this matter,  that there are indications  that under
                  the  circumstances  the Company is likely not to be considered
                  as  PFIC.  Nevertheless,   there  is  no  certainty  that  the
                  company's  stand will be  accepted  by the US tax  authorities
                  regarding such definition.

                  No final  determination  has been made  regarding any possible
                  effect of the sale of the Company's plant in December 2002, on
                  the current  PFIC status of the  Company.  However the Company
                  believes  that no  significant  impact  will  result from this
                  transaction.

              b.  US  tax   laws  set   limitations   on  the   utilization   of
                  carry-forward  tax losses in companies  that have  undergone a
                  material change in ownership.  Accordingly, if the transfer of
                  the EMI shares to EIL in 1999 is defined as a material  change
                  in ownership  of the Company,  then the ability to utilize the
                  accumulated  tax-losses  of  a  U.S.  consolidated  subsidiary
                  against  future  income  would  be  limited  considerably.  No
                  deferred income taxes have been recorded for those accumulated
                  tax losses.

          (3)     HOLLAND

                  a.  Corporate tax applicable to companies  incorporated in the
                      country - 34.5%.
                  b.  Under the "Participation  Exemption",  a dividend received
                      by a Dutch  company in respect of an  investment in shares
                      of  other  companies  is  exempt  from  corporate  tax  in
                      Holland.  A  capital  gain  derived  upon  the sale of the
                      shares of an  investee  company  would be exempt from tax,
                      subject to the fulfillment of the following conditions:
                      (1)   The company holds at least 5% of the share capital
                            of the investee.
                      (2)   The  investing  company and the  investee  are not
                            investment funds as defined by Dutch law.
                      (3)   The investment is not held as inventory.

                      Four additional  criteria are required for an exemption in
                      respect of an investment in foreign companies:

                      (1)   The profits of the  investee  must be taxed in its
                            country of residence.
                      (2)   The  investment  is not  carried  out  within  the
                            framework of an investment portfolio.
                      (3)   The investee is an active company.
                      (4)   A  subsidiary  acting  as the  financier  must  be
                            active and meet additional conditions.

                      Capital  losses  cannot be offset  unless the investee had
                      been liquidated, under certain conditions.

                                                                              36
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 18 - INCOME TAXES (CONT'D)

B.       TAX LAWS  APPLICABLE  TO THE MAJOR GROUP  COMPANIES IN THEIR COUNTRY OF
         RESIDENCE (CONT'D)

         (4)     JERSEY

                 a. A company with an international commercial activity:

                    -    Income from  operating  activities is subject to tax at
                         the rate of 30%.
                    -    Income from international  activity  (including receipt
                         of dividends) would be taxed at rates ranging from 0.5%
                         to 2%.
                    -    Capital gains would be exempt from tax.
                    -    Dividend  distributed  would  be taxed at a rate of 20%
                         subject to international tax treaties.

                 b. A company without an international commercial activity:

                    -    Income (if not earned in Jersey),  in excess of a fixed
                         annual amount of pound sterling 600 is exempt from tax.
                    -    Income derived in Jersey except for bank interest would
                         be taxed at 20%. - Capital  gains  would be exempt from
                         tax. - A dividend  distributed  from profits  gained in
                         Jersey will be entitled to tax credit of 20%.

         (5)     ENGLAND

                 a. A company resident of England:

                    -    Operating  income and capital gains would be subject to
                         tax rates  ranging  from 0% to  32.75%,  subject to the
                         level of profitability.
                    -    Dividends  received  from a U.K.  resident  company are
                         exempt from tax.
                    -    No tax credits are given for dividends distributed.

                 b. A  non-resident  company  having an investment  activity in
                    property in England:

                    -    Net rental  income from  leasing  buildings  in England
                         would be taxed at 22%.
                    -    Capital gains are exempt from tax.

         (6)     BELGIUM

                 The corporate tax applicable to income of  Belgian-incorporated
                 corporation is approximately  34%.  Dividend paid out from such
                 income is subject  to an  additional  tax of 25%,  other than a
                 dividend  received by companies  incorporated  in Belgium or in
                 the EU, whose  holding rate in the Belgian  company is at least
                 25%, subject to international tax treaties.

         (7)     HUNGARY

                 The corporate tax rate applicable to income (including  capital
                 gains) of  subsidiaries  incorporated  in the  country  is 18%.
                 Dividends  paid out of these profits are taxed by an additional
                 20%,  subject  to the  terms  of the  relevant  treaty  for the
                 prevention  of double  taxation.  Losses  from the  third  year
                 onward  may be offset  against  taxable  income for a period of
                 five years.  The losses  incurred during the first two years of
                 operation  may be carried  forward for an  unlimited  period of
                 time.

         (8)     ROMANIA

                 The  corporate  income  tax rate  for  resident  companies  and
                 non-resident entities with permanent  establishments in Romania
                 is  generally  25%.  Capital  gains are  generally  treated  as
                 ordinary  business  income.  Dividends  paid  to  resident  and
                 non-resident  companies are subject to a final  withholding tax
                 of 10%,  unless reduced double  taxation treaty rates apply for
                 non-residents.  Losses may be offset against taxable income for
                 a period of five years from the period they incurred.


                                                                              37
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 18 - INCOME TAXES (CONT'D)

C. RECONCILIATION OF THE THEORETICAL TAX EXPENSE AND THE ACTUAL TAX EXPENSE

<TABLE>
<CAPTION>
                                                                                              YEAR ENDED DECEMBER 31,
                                                                                      ------------------------------------
                                                                                             2002        2001         2000
                                                                                      -----------   ---------   ----------
                                                                                              ADJUSTED NIS (THOUSANDS)
                                                                                      ------------------------------------

<S>                                                                                     <C>           <C>        <C>
         (Loss) income taxes from continuing operations                                 (30,534)      37,477     (26,326)
                                                                                      ===========   =========   ==========

         Statutory tax rate in Israel                                                        36%          36%         36%
                                                                                      ===========   =========   ==========



         Theoretical tax on the above amount                                            (10,992)      13,491      (9,477)
         Adjustment for reduced tax rate in foreign subsidiaries                         (3,085)        (205)        646
         Tax loss carryforwards from prior years for which deferred taxes
           were not created and which were utilized during the current year             (10,045)     (16,960)    (10,545)
         Decrease in taxes resulting from
          permanent differences - net                                                   (22,273)     (28,369)    (16,896)
         Capital gain from sale of investments and assets, net                                -       (3,375)          -
         Increase in taxes, resulting from unrecorded deferred tax, net                  47,814       44,928      50,451
         Differences arising from changes in exchange rates or indexing
           for tax purpose and for the financial statements                              (6,740)      (4,024)     (9,455)
                                                                                      -----------   ---------   ----------

         Total income taxes related to continuing operations                             (5,321)       5,486       4,723
                                                                                      ===========   =========   ==========

</TABLE>







                                                                              38
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 18 - INCOME TAXES (CONT'D)

D. (1)  Significant  components  of the  Company's  net  deferred tax assets and
liabilities are as follows:

<TABLE>
<CAPTION>
                                                                                             DECEMBER 31,        DECEMBER 31,
                                                                                                     2002                2001
                                                                                             ------------        ------------
                                                                                                 ADJUSTED NIS (THOUSANDS)
                                                                                             --------------------------------
         DEFERRED TAX ASSETS:
<S>                                                                                              <C>                <C>
         Net operating loss, carryforward                                                        154,231            123,561
         Others                                                                                   37,981             45,153
                                                                                             ------------        ------------

                                                                                                 192,212            168,714
         Valuation allowance for deferred tax assets                                             178,971            155,714
                                                                                             ------------        ------------

                                                                                                  13,241             13,000
         DEFERRED TAX LIABILITY:

         Excess of tax over book depreciation                                                     11,788             20,081
         Timing differences in respect of recognition of finance expenses                          1,299                999
                                                                                             ------------        ------------
         Net deferred tax liabilities                                                             13,087             21,080
                                                                                             ------------        ------------
         NET DEFERRED TAX ASSETS (LIABILITIES)                                                       154             (8,080)
                                                                                             ============        ============
</TABLE>



     (2) Deferred  taxes are  presented  in the  consolidated  balance  sheet as
follows:

<TABLE>
<CAPTION>
                                                                                             DECEMBER 31,        DECEMBER 31,
                                                                                                     2002                2001
                                                                                             ------------        ------------
                                                                                                  ADJUSTED NIS (THOUSANDS)
                                                                                             --------------------------------
<S>                                                                                               <C>                <C>
         Within non-current assets                                                                11,097             10,216

         Within non-current liabilities                                                           10,943             18,296

</TABLE>


E.       FINAL TAX ASSESSMENTS:

         The Company has received final tax  assessments  through 1998.  Some of
         the Group  companies  abroad have received final tax  assessments  from
         1996 to 2001 while some have not yet been assessed since incorporation.


                                                                              39
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 19 - BUSINESS SEGMENTS

A.    DATA REGARDING BUSINESS SEGMENTS

<TABLE>
<CAPTION>
                                                       Hotel           Commercial and            Other            Consolidated
                                               --------------------     entertainment     ------------------- ---------------------
                                                                           center
                                                                     -------------------
                                                    2002       2001       2002     2001        2002      2001       2002        2001
                                               ---------  ---------  --------- ---------  --------- --------- ---------- -----------
                                                                             Adjusted NIS (thousands)
<S>                                                   <C>    <C>         <C>      <C>       <C>       <C>        <C>        <C>
   REVENUES                                      210,650   141,898      1,538    10,221          -         -    212,188     152,119
                                               =========  =========  ========= =========  ========= ========= ========== ==========
   Operating income (loss)                            20     4,484       (398)    2,541     (3,931)   (4,056)    (4,309)      2,969
                                               =========  =========  ========= =========  ========= =========
   Unidentifiable expenses                                                                                      (17,361)    (18,470)
                                                                                                              ---------- -----------
   Total operating loss                                                                                         (21,670)    (15,501)
   Finance income, net                                                                                           13,051      66,344
   Other expenses, net                                                                                          (21,915)    (13,366)
                                                                                                              ---------- -----------
   (Loss) income before income taxes                                                                            (30,534)     37,477
   Income taxes                                                                                                  (5,321)      5,486
                                                                                                              ---------- -----------
   (Loss) income after income taxes                                                                             (25,213)     31,991
   The Company's share in
     loss of affiliated companies                      -         -          -         -      2,902     9,899      2,902       9,899
   Minority interest in loss of subsidiary, net                                                                     896       1,313
                                                                                                              ---------- -----------
   Net (loss) income from continuing
     operations                                                                                                 (27,219)     23,405
   Net income from discontinuing operations                                                                      90,693      34,587
                                                                                                              ---------- -----------
   Net income                                                                                                    63,474      57,992
                                                                                                              ========== ==========
   SUPPLEMENTAL INFORMATION

   Identifiable assets                        *1,215,094 *1,051,831  **457,007**337,685     33,882    32,789  1,705,983   1,422,305


   Unallocated assets                                                                                           737,358   1,015,684
                                                                                                              ---------- -----------
                                                                                                              2,443,341   2,437,989
                                                                                                              ========== ==========

   Identifiable liabilities                       53,715    38,991      3,224     9,431        587     2,030     57,526      50,452
   Unallocated liabilities                                                                                    1,364,408   1,377,205
                                                                                                              ---------- -----------
                                                                                                              1,421,934   1,427,657
                                                                                                              ========== ==========

   Capital investments                            52,096   328,546    120,746    75,720      4,893    23,875    177,735     428,141
   Corporate capital investments                                                                                    519       1,411
                                                                                                              ---------- -----------
                                                                                                                178,254     429,552
                                                                                                              ========== ==========

   Depreciation                                   37,286    19,761         11        89         66        65     37,363      19,915
   Impairment (included in other expenses)        16,327         -          -         -          -         -     16,327           -
   Corporate depreciation and amortization                                                                        1,249       2,057
                                                                                                              ---------- -----------
                                                                                                                 54,939      21,972
                                                                                                              ========== ==========

</TABLE>

     *    Including assets under construction amounting to NIS 161,129 thousand
          and NIS 91,919 thousand as of December 31, 2002 and December 31, 2001,
          respectively.
     **   Assets under construction.


                                                                              40
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 19 - BUSINESS SEGMENTS (CONT'D)

A.    DATA REGARDING BUSINESS SEGMENTS (CONT'D)

<TABLE>
<CAPTION>
                                                                                COMMERCIAL
                                                                                   AND
                                                                              ENTERTAINMENT
                                                                HOTELS            CENTER          OTHER       CONSOLIDATED
                                                             -------------     ------------    ------------   -------------
                                                                 2000              2000            2000           2000
                                                             -------------     ------------    ------------   -------------
                                                                                   ADJUSTED NIS (THOUSANDS)
                                                             --------------------------------------------------------------
<S>                                                                <C>                <C>            <C>            <C>
        REVENUES                                                  108,088            20,367             -          128,455
                                                             =============     =============   ============   =============
        Operating income (loss)                                    12,642             2,123          (413)          14,352
                                                             =============     =============   ============

        Unidentifiable expenses                                                                                    (22,746)
                                                                                                              -------------
        Total operating loss                                                                                        (8,394)
        Finance expenses, net                                                                                      (20,599)
        Other income, net                                                                                            2,667
                                                                                                              -------------
        Loss before income taxes                                                                                   (26,326)
        Income taxes                                                                                                 4,723
                                                                                                              -------------
        Loss after income taxes                                                                                    (31,049)
        The Company's share in net
         loss of affiliated companies                                   -                 -         3,302            3,302
                                                                                                              -------------
        Net Loss from continuing operations                                                                        (34,351)
        Net income from discontinuing operations                                                                    77,940
                                                                                                              -------------
        Net income                                                                                                  43,589
                                                                                                              -------------

</TABLE>

B.    SEGMENTS CLASSIFIED BY GEOGRAPHICAL MARKETS

      Consist of the following:

<TABLE>
<CAPTION>
                                                               REVENUES
                                              --------------------------------------------
                                                         YEAR ENDED DECEMBER 31,
                                              --------------------------------------------
                                                      2002            2001            2000
                                              ------------    ------------    ------------
                                                         ADJUSTED NIS (THOUSANDS)
                                              --------------------------------------------
<S>                                               <C>             <C>             <C>
         Western Europe                           173,598         109,845         106,684
         Israel                                     1,538          10,221          20,367
         Eastern and central Europe                35,392          30,958               -
         Others                                     1,660           1,095           1,404
                                              ------------    ------------    ------------
                                                  212,188         152,119         128,455

                                                  IDENTIFIABLE ASSETS             CAPITAL INVESTMENT
                                              ----------------------------    ---------------------------
                                                 YEAR ENDED DECEMBER 31,         YEAR ENDED DECEMBER 31,
                                              ----------------------------    ---------------------------
                                                      2002            2001            2002           2001
                                              ------------    ------------    ------------   ------------
                                                ADJUSTED NIS (THOUSANDS)       ADJUSTED NIS (THOUSANDS)
                                              ----------------------------    ---------------------------

         Western Europe                           968,348         821,629          41,449        152,652
         Eastern and central Europe               238,607         218,927          10,597        173,171
         Israel                                   495,305         379,289         125,639        102,318
</TABLE>


                                                                              41
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 19 - BUSINESS SEGMENTS (CONT'D)

C.   SUPPLEMENTAL  INFORMATION  REGARDING  THE MAIN  INVESTMENTS  IN THE HOTELS'
     SEGMENT
<TABLE>
<CAPTION>

   HOTEL NAMES                                     RIGHTS
                                                  (DIRECT
                                                     AND                           NATURE OF     STATUS OF      NO. OF
                                                  INDIRECT)       LOCATION           RIGHTS     REGISTRATION     ROOMS     CLASS
                                                  ---------  ------------------   ------------  ------------    -------  ---------
   ACTIVE HOTELS:                                     %                                                                   (STARS)
<S>                                   <C>            <C>     <C>                  <C>             <C>           <C>      <C>
   Victoria Amsterdam                 ("VHA")        50      Amsterdam, Holland   Ownership       Completed     305      4-delux
   Utrecht Park Plaza                 ("PPU")        50      Utrecht, Holland     Leased (i)      Completed     120      4
   Astrid Park Plaza                  ("APP")        100     Antwerpen, Belgium   Ownership       Completed     229      4
   Shaw Park Plaza                    ("SPP")        35      London, England      Ownership(ii)   Completed     310      4-delux
   Sherlock Holmes Park Plaza         ("HPP")        45      London, England      Subleased       Completed     119      4-delux
                                                                                  (iii)
   Victoria Park Plaza                ("VPP")        50      London, England      Ownership       Completed     300      4-delux
   Sandton Park Plaza                 ("PPS")       33.3     Johannesburg, S.A.   Ownership       Completed     138      4
   Bucuresti Apartment Hotel          ("APH")        69      Bucharest,           Ownership       Completed     230      irrelevant
                                                             Romania

   UNDER CONSTRUCTION AND/OR LAND
   DESIGNATED FOR HOTEL CONSTRUCTION:

   River Bank Park Plaza              ("RPP")        45      London, England      Leased (iv)     Completed     537(v)   4-5(v)
   Andrassy - building designated for
   renovation                         ("Andrassy")   50      Budapest, Hungary    Ownership       Completed(vi) 196      4-5(v)
   Bucuresti Hotel                    ("BPP")        69      Bucharest, Romania   Ownership       Completed     446      4

</TABLE>

     (i)  The leasing rights were acquired from the  Municipality of Utrecht for
          an  unlimited  period of time,  with the  leasing  cost  reflecting  a
          capitalization  of leasing fees for a 50-year period (until 2036).  In
          addition,  the  execution  of any change in the use of the land or the
          demolition of a building thereon requires approval as  aforementioned.
          The lessee cannot  terminate the leasing rights.  The Municipality may
          terminate the leasing  rights,  only if it determines that the land is
          required  for public needs or if a court rules that the lessee did not
          fulfill its undertakings under the terms of the lease.

     (ii) Subsequent to the balance sheet date (January 2003) the company owning
          the  hotel  reached  an  agreement  with an  external  hotel  company,
          according to which the hotel would be leased for a period of 25 years.
          The rent  payment will be in a fixed amount for each of the first four
          years, and it will increase by 2.5% each year beginning from the fifth
          year until the end of the  lease.  The rent  payments  are paid once a
          quarter in  advance.  A deposit in the  amount of Pound  Sterling  2.5
          million  will  serve as  security  for the rent  payments.  The  hotel
          company  was  granted  an  option  to  extend  the  agreement  by  two
          additional  periods of 15 years each. As at December 31, 2002 the cost
          of the hotel is Pound Sterling 46 million.



                                                                              42
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 19 - BUSINESS SEGMENTS (CONT'D)

C.   SUPPLEMENTAL  INFORMATION  REGARDING  THE MAIN  INVESTMENTS  IN THE HOTELS'
     SEGMENT (CONT'D)

     (iii)  For a period of 99 years  (commencing  1996),  in exchange for pound
            sterling 450  thousand  annually,  adjusted  every five years on the
            basis of "open  market  value".  The company  holding  the  property
            Grandis   Netherland  Holding  B.V.   ("Grandis"),   has  an  option
            exercisable  at the  end  of a 3 year  period  commencing  from  the
            agreement  date,  to notify the owners as to either the extension of
            the sub lease  period up to 125 years or the  purchase  of the owner
            rights in the main  lease.  Furthermore,  Grandis  has the option to
            terminate  the lease at year 2059 with an early notice of 2.5 years.
            A Red Sea Group company ("guarantor")  guaranteed fulfillment of all
            undertakings  of Grandis as if it was a party to the agreement.  The
            guarantee contains a provision, by which, in the event the guarantee
            is exercised,  the  land-owners  may require the guarantor to assume
            Grandis' position as a lessee. Two documents were signed between the
            guarantor and B.H., which regularize the indemnification  procedures
            amongst  them, in relation to the said  guarantee.  The parties will
            endeavor to substitute the guarantee provided by the guarantor.

    (iv)    For a period of 125 years  (commencing  2000), in exchange for pound
            sterling 500 thousand per annum,  adjusted  each five years based on
            the CPI in England.  Several previous rights exist on this property,
            as well as  benefit-links  of various  authorities,  contingent upon
            which the leasing of the property had been carried out; based on the
            framework  agreement,  the lessee is disallowed to assign his rights
            to a third party without the lessor's consent; taxes, surcharges and
            fees  related to the  property  will be paid by the  lessee;  in any
            event of breach of contract by the lessee, the lessor would have the
            right  to  forfeit  the  property  in  accordance   with  the  terms
            stipulated  in the  agreement;  in cases when the lessor  receives a
            proposal  for  the  acquisition  of  the  ownership  rights  in  the
            property, the lessee shall be entitled to have the right for initial
            purchase refusal.

    (v)     Planned.







                                                                              43
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                                                                Elscint Limited
                                                       and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
-------------------------------------------------------------------------------

NOTE 19 - BUSINESS SEGMENTS (CONT'D)

C.    SUPPLEMENTAL  INFORMATION  REGARDING THE MAIN  INVESTMENTS  IN THE HOTELS'
      SEGMENT (CONT'D)

      (1)   VICTORIA HOTEL C.V. - A LIMITED PARTNERSHIP ("VHCV")

            The Victoria  Hotel in  Amsterdam is owned by a limited  partnership
            registered  in Holland.  VHCV is held by a subsidiary of the Company
            ("VEII") and an additional  company,  a member of the Red Sea Hotels
            Group - 50%  (directly and  indirectly)  by each party (both jointly
            below - "the Limited  Partnership").  VHRI - a company  owned by the
            Limited  Partnership - is the general partner in the partnership and
            manages, by virtue of an agreement , VHCV's business.

            The limited partners in the VHCV Limited Partnership, which serve as
            directors in VHRI, may be held jointly and severally  liable for the
            obligations of the limited partnership.

      (2)   SHAW HOTEL HOLDING B.V. ("SHH")

            On  completion  of the  reorganization  process of the  structure of
            holdings of hotels in England in December  2002, the Shaw Park Plaza
            Hotel  in  London  will be owned by SHH,  which is  incorporated  in
            Holland and 35% of its share capital is held by B.H.,  35% - held by
            the Red Sea Hotels  Group while the balance of the shares  (30%) are
            held   by   an   additional   corporation    (hereinafter   -   "the
            Shareholders").  On December 31, 2002 SHH held (indirectly) also the
            shares  of the  Hotel's  operating  company  (hereinafter  - "ERO").
            Concurrently  with the  leasing of the Hotel to a third  party ("the
            Lessee"),  ERO entered into an agreement with the Lessee to sell the
            hotel's  operations  (including  the  portfolio  of  customers,  the
            inventories and goodwill).

            The  shareholders  and the  companies  controlled  by  them  have an
            agreement between  themselves in the framework of which the terms of
            the holding of the shares in SHH,  inter alia,  have been  arranged.
            The agreement  stipulates  that every  shareholder  has the right to
            appoint up to 2 directors,  where every  director will have a voting
            power in  proportion  to the  number of  shares  of the  shareholder
            appointing  him and  proportionally  to the number of  directors  on
            behalf of that shareholder present at the meeting,  without giving a
            casting  vote to the  Chairman  of the  Board  of  Directors  or the
            Chairman  of the  General  Meeting,  as the case  may be.  Decisions
            regarding the companies'  budgets will be taken after  obtaining the
            agreement of every  shareholder.  Decisions at meetings of the Board
            of Directors and General Meetings will be passed by a majority,  but
            a number of important  matters have been decided  where the decision
            must be unanimous.

            Park  Plaza  Hotels  Europe  Ltd.  (hereinafter  -  "the  Management
            Company")  has an option to receive 10% of the share  capital of SHH
            (out of the  holdings of the Company and of the Red Sea Hotels Group
            and   proportionally   to  their  holdings  -  5%  each  party),  in
            consideration  for participation at a rate of 10% in all investments
            of  shareholders,  up to the  date  of  realizing  the  option.  The
            validity of the option has been extended by agreement up to December
            31, 2004.  No extension  agreement  has yet been signed  between the
            parties.  If the option is  exercised,  the  holdings of B.H. in SHH
            will be reduced to 30%.

      (3)   GRANDIS NETHERLANDS HOLDING B.V. ("GRANDIS")

            B.H. holds 45% of the rights in Grandis, a Dutch corporation holding
            a sublease  interest in the "Sherlock  Holmes Park Plaza Hotel",  an
            operational  hotel in London.  A further 45% of the remaining rights
            are held by a Red Sea Group subsidiary, with the balance of 10% held
            by a management company.

            The  shareholders of Grandis have agreed that the shares held by the
            management  company would not carry any voting  rights.  In order to
            achieve this,  the  management  company has granted B.H. and the Red
            Sea Group subsidiary a power of attorney to vote jointly in its name
            and in the name of the  management  company  in  every  shareholders
            meeting and in every matter  requiring the decision of shareholders.
            B.H. is entitled to appoint one director (of two) in Grandis.


                                                                              44
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                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 19 - BUSINESS SEGMENTS (CONT'D)

C.    SUPPLEMENTAL  INFORMATION  REGARDING THE MAIN  INVESTMENTS  IN THE HOTELS'
      SEGMENT (CONT'D)

      (4)   RIVER BANK HOTEL HOLDING B.V. ("RBH")

            On completion of the reorganization  process of the structure of the
            hotels'  holdings in  England,  in  December  2002,  RBH - a company
            incorporated in Holland - will hold the leasehold  rights of land on
            the  banks of the  Thames  River in  London.  B.H.  holds 45% of the
            rights of RBH, an  additional  45% are held by the Red Sea Group and
            10% are held by the management  company.  Among the  shareholders of
            RBH it was agreed that the shares,  which are held by the management
            company, will have no voting rights whatsoever.

      (5)   VICTORIA LONDON HOTEL HOLDING B.V. ("VLH")

            On  completing  the  reorganization  of the structure of the hotels'
            holdings in England in December 2002,  VLH - a company  incorporated
            in  Holland  - will  hold the  ownership  rights in the land and the
            Victoria Park Plaza Hotel, built on it in London.  B.H. holds 50% of
            the rights in VLH, an  additional  45% are held by the Red Sea Group
            and 5% are held by the management company. It was agreed between the
            shareholders  of VLH that the shares held by the management  company
            will have no voting  rights  whatsoever,  thus the voting rights are
            divided 50% to B.H. and 50% to the Red Sea Group.

      (6)   PARK PLAZA HOTEL (SANDTON) (PTY) LTD. ("SANDTON")

            B.H. owns (through a company  incorporated  in Holland) 33.3% of the
            rights in a hotel operating in South Africa,  which is in turn owned
            by Sandton.  The remaining  rights are held  (indirectly) by the Red
            Sea  Group and  another  company  (which  is a related  party to the
            management  company) (33.3% to each party)  (hereinafter  together -
            "the Shareholders").

            The agreement  establishing the Dutch  incorporated  holding company
            stipulates that each party has the right to appoint one director and
            that the  resolutions  of the  Board of  Directors  and the  General
            Meetings will be passed by a majority vote; however, it was resolved
            that certain key matters would require a unanimous decision.

            The parties to the  agreement  are entitled to and are liable for in
            equal shares all the rights and  obligations  connected  with and/or
            relating  to the hotel,  to  Sandton  and to the  hotel's  operating
            company,  and this  includes,  inter alia, the obligation to provide
            credit,  guarantees or shareholders'  capital,  as necessary for the
            acquisition and/or operation of the hotel.

      (7)   SC BUCURESTI TURISM S.A. ("BUCURESTI")

            i   B.H. holds all the rights (in capital,  voting and the rights to
                appoint all  directors) in a company known as BEA Hotels Eastern
                Europe B.V.  ("BHEE")  (incorporated  in Holland)  which  holds,
                indirectly  - through a wholly  owned  and  controlled  company,
                incorporated in Romania ("Domino") - 69% of Bucuresti. Bucuresti
                owns a complex  including  an hotel,  an  apartment  hotel and a
                restaurant,  situated in the center of Bucharest,  Romania ("the
                Bucuresti   Complex").   Bucuresti  was   purchased   through  a
                privatization  tender  published by the State  Ownership Fund of
                the  Romanian  government  ("SOF").  The  tender  procedure  was
                approved by a decision of the Supreme Court of Romania. The cost
                of the  acquisition  of the  rights  in the  complex  (including
                related costs of the purchase) totaled NIS 172 million.

                The  acquisition  of the rights in  Bucuresti  was  carried  out
                within the  framework of a memorandum of  understanding  ("MOU")
                for the  establishment  of a joint  venture  in which 80% of the
                rights  were  to be held by  B.H.  and 20% of the  rights  by an
                unrelated third party ("Third Party Shareholder").  Based on the
                terms of the MOU,  B.H. is entitled to receive  100% of Domino's
                profits to be distributed as dividends up to an aggregate amount
                of U.S.$ 2 million. Income above this amount will be distributed
                according to the ratio of holdings (80%; 20%).


                                                                              45
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 19 - BUSINESS SEGMENTS (CONT'D)

C.n  SUPPLEMENTAL INFORMATION  REGARDING  THE MAIN  INVESTMENTS  IN THE  HOTELS'
SEGMENT (CONT'D)

      (7)   SC BUCURESTI TURISM S.A. ("BUCURESTI") (CONT'D)

                In  addition,  B.H.  has a Put  Option to demand  that the Third
                Party  Shareholder  increase  its  percentage  shareholding  (in
                accordance with the cost of the full  investment)  from 20% to a
                level of 50% for the  period  and on the  conditions  as  agreed
                between  the  parties.  The  parties  undertook  to finance  the
                renovation of the hotel, should this be required.  Should one of
                the parties not provide the finance in  proportion to its share,
                its  holdings  will be  diluted  based  on the  mechanism  to be
                agreed.
                In December 2001 all of the shares in Domino were transferred to
                BHEE.

                ii.  As a result of a dispute  which arose  between B.H. and the
                     Third Party Shareholder  regarding  compliance by the Third
                     Party   Shareholder   with  its   obligations   to  provide
                     indemnities  to B.H.  pertaining  to the results of certain
                     matters  pending  against  Domino  (the  circumstances  and
                     causes of which  arose  prior to the  signature  of the MOU
                     concluded between the parties in respect of the acquisition
                     of Bucuresti),  B.H is withholding  the shares of the Third
                     Party  Shareholder (20%) in BHEE as security for compliance
                     by the Third Party  Shareholder  with its  obligations,  so
                     that formally B.H. is, therefore, on the date of publishing
                     the financial statements,  the owner of 100% of the capital
                     and voting rights in Domino. The results of this dispute do
                     not have an effect on the results of operations of B.H. for
                     the periods of report and/or on amount of its shareholders'
                     equity as at December 31, 2002.

                     BHEE  filed a  financial  claim  against  the  Third  Party
                     Shareholder  as a result of its  failure to comply with the
                     terms of the indemnity given by it, within the framework of
                     which  attachments  were imposed on the assets of the Third
                     Party   Shareholder.   In  October  2002  the  Third  Party
                     Shareholder filed an application with the Court to transfer
                     the  dispute  to   arbitration   in  accordance   with  the
                     provisions  of the MOU.  BHEE filed its  objection  to this
                     application,  and in December  2002 the court  rejected the
                     Third  Party  Shareholder's  application  to  transfer  the
                     dispute to arbitration.  As a result,  in February 2003 the
                     Third  Party  Shareholder  filed  a  statement  of  defense
                     relating to the claim.

                iii. An  application  submitted  to the High Court of Romania to
                     cancel  the  tender  under  which  Domino   purchased   the
                     controlling shares of Bucuresti, was rejected by the Court.
                     This ruling could be appealed to the High Court.  Up to the
                     date of approval of the financial  statements no appeal has
                     been  filed.  As the  period of time to serve an appeal has
                     passed,  the legal  advisors of Domino  consider  that this
                     matter may be  considered  as being  closed.  An additional
                     claim for the cancellation of the tender,  the cancellation
                     of the entire  privatization  process relating to Bucuresti
                     and the  cancellation  of  Domino's  rights in  Bucuresti's
                     shares  has  been  filed  with  the  Magistrates  Court  in
                     Bucharest,  Romania.  In the  pre-trial  hearing which took
                     place on March 6,  2003 the  Court  rejected  the  claim in
                     limine.



                                                                              46
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 19 - BUSINESS SEGMENTS (CONT'D)

C.  SUPPLEMENTAL  INFORMATION  REGARDING  THE MAIN  INVESTMENTS  IN THE  HOTELS'
SEGMENT (CONT'D)

      (7)   SC BUCURESTI TURISM S.A. ("BUCURESTI") (CONT'D)

                iv.  A criminal  investigation  carried  out against a number of
                     suspects   (including  former  officers  in  SOF  who  were
                     involved  in the  privatization  process  and  the  sale of
                     control  in the  Bucuresti  Hotel  to  Domino)  for  events
                     relating to the period prior to the  acquisition of control
                     in  Bucuresti  by  B.H.,  culminated  in the  filing  of an
                     indictment  against  17  accused.  The  hearings  in  these
                     proceedings  have been deferred until September 2003. These
                     criminal  proceedings  may have an  indirect  effect on the
                     validity  of the  privatization  and  thereby  an  indirect
                     effect on Domino's  rights in  Bucuresti,  despite the fact
                     that Domino is not an accused  party under the  indictment.
                     Domino's legal attorneys  cannot estimate at this stage the
                     results  of the  criminal  proceedings  or their  effect on
                     Domino's rights in Bucuresti.

                v.   The Third Party Shareholder (a former shareholder in Domino
                     - see i above) cancelled the partnership  agreement that it
                     made with another third party ("the  Plaintiff")  regarding
                     their joint  investment in Domino prior to its  acquisition
                     by B.H., on the grounds of  non-compliance by the Plaintiff
                     with its  fundamental  obligations  under  the  partnership
                     agreement.  As a result,  the  Plaintiff  filed a financial
                     claim in the courts in Romania  against  Domino and others,
                     for an amount of US$ 2.5 million, for commissions allegedly
                     due  to it  in  terms  of  the  abovementioned  partnership
                     agreement,  and to which Domino was a party. Domino's legal
                     advisors  in  respect  of this  matter  estimate  that  the
                     Plaintiff  will  be  unable,  for  procedural  reasons,  to
                     complete the proceedings  relating to the claim. This claim
                     is  covered  by the  indemnity  given to B.H.  by the Third
                     Party Shareholder.

                     On the date of  approval  of the  financial  statements  an
                     additional  claim  filed  against  Domino by another  third
                     party is pending,  in which the main reliefs  claimed under
                     it are  the  payment  of the  same  commission  of US$  2.5
                     million  in  accordance  with  the  partnership   agreement
                     mentioned  above, and the cancellation of an agreement with
                     a bank in Israel  within the  framework of which the shares
                     of Domino in  Bucuresti  were pledged in favor of the bank.
                     The  Company  received  an  indemnity  from the Third Party
                     Shareholder against these claims (see i above). In Domino's
                     opinion, based on legal advice received,  these claims have
                     no legal or  contractual  basis  whatsoever,  and the third
                     party has no legal standing to make its claims. Accordingly
                     no provision  for these claims is included in the financial
                     statements.





                                                                              47
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                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 19 - BUSINESS SEGMENTS (CONT'D)

C.    SUPPLEMENTAL  INFORMATION  REGARDING THE MAIN  INVESTMENTS  IN THE HOTELS'
      SEGMENT (CONT'D)

      (7)   SC BUCURESTI TURISM S.A. ("BUCURESTI") (CONT'D)


                vi.   In the  framework  of an  agreement  to  establish a joint
                      company  owned by Bucuresti  and a third party,  which was
                      signed prior to the acquisition of Bucuresti by B.H., that
                      third party undertook to invest US$ 27 million in the said
                      joint company and in consideration  Bucuresti undertook to
                      transfer  its  rights  in  the  Bucuresti  Complex  to the
                      ownership of the joint company. As that third party failed
                      to  meet  its   obligations,   Bucuresti   cancelled   the
                      partnership  contract and also filed an application to the
                      Court to liquidate the joint company.  At this stage,  the
                      parties are litigating regarding the sole authority of the
                      Romanian  Courts to issue an  instruction to liquidate the
                      joint  company and not regarding the transfer of rights in
                      the Bucuresti  Complex to the joint company.  If Bucuresti
                      is forced to transfer its rights in the Bucuresti  Comlpex
                      to the  joint  company,  then its  rights in the hotel are
                      likely to be significantly  prejudiced.  B.H.'s management
                      is of the  opinion  that  it is not  reasonable  that as a
                      result of the said proceedings Bucuresti will be forced to
                      transfer its rights in the  Bucuresti  Comlex to the joint
                      company.

                vii.  In addition, certain legal proceedings are being conducted
                      in  Romania  within the  framework  of which it is claimed
                      that  resolutions   passed  at  the  general  meetings  of
                      shareholders of Bucuresti,  were not validly adopted - for
                      procedural  reasons  only - and are not  binding.  Some of
                      these  proceedings  were  approved  by  the  Court  and in
                      respect of others Domino has filed appeals,  while some of
                      these proceedings were rejected by the Courts.

                      B.H.'s  management  is of the opinion  that the claims are
                      spurious  and  tendentious  and that these claims will not
                      significantly  affect  B.H.'s  rights  in  the  shares  of
                      Bucuresti and in the Bucuresti Complex owned by it.

                viii. Two claims are pending against Bucuresti,  which challenge
                      its  ownership  in its  properties  (including  an  appeal
                      relating  to the period of the  State's  ownership  of the
                      properties  which are the  subject of the claim,  prior to
                      the sale of  Bucuresti's  shares  to  Domino).  One of the
                      claims is rejected,  but the plaintiffs  have the right to
                      appeal  this  ruling,  and  regarding  the other the legal
                      advisors are not able to estimate the results.

                ix.   There  are  legal   proceedings   against   Domino  and/or
                      Bucuresti ("the Companies")  regarding various  activities
                      carried out in the normal course of business,  for a total
                      amount  of US$ 160  thousand.  In the  opinion  of  B.H.'s
                      management,  B.H. will not have any significant additional
                      costs over and above those  included in the  provision  in
                      the financial statements.

      (8)   ASTRID PARK PLAZA N.V. ("AP")

            Repeated  postponements in the execution of  infrastructure  work by
            the Belgium authorities next to the hotel owned (but not controlled)
            by a Belgium investee have adversely affected its activity. In light
            of these  postponements the Comapny deemed it necessary to reexamine
            the  adjusted  value of its  investment  in the  company  owning the
            hotel.  Following  that  examination  the  Company  included  in its
            financial   statements  a  provision  of  NIS  23.2  million  as  an
            adjustment  of that  investment's  value to its fair value (NIS 11.3
            million - against capital reserves from translation  adjustments and
            NIS 11.9 million - in "other income  (expenses)".  The fair value of
            the  investment  was  determined  based on,  among other  things,  a
            valuation obtained from an independent appraiser.


                                                                              48
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 19 - BUSINESS SEGMENTS (CONT'D)

D.    SUPPLEMENTAL INFORMATION REGARDING THE COMMERCIAL AND ENTERTAINMENT CENTER

      The Company's  revenue from  commercial and  entertainment  center in this
      stage are revenue from  constructing  work. For  supplemental  information
      regarding the commercial and entertainment center - see Note 29.B.

E.    See Note 31 regarding  discontinuing  operation of the  sub-assemblies and
      component segment.

NOTE 20 - COMMITMENTS AND LIENS ON ASSETS

A.    COMMITMENTS

      (1)  The minimum  annual future  rental fees under the  operating  leases,
           based on  prices  and  terms in  effect at  December  31,  2002,  not
           including  renewal  options,  for periods  subsequent to December 31,
           2002, are as follows:

                                                      ADJUSTED NIS
           YEAR ENDING DECEMBER 31                     (THOUSANDS)
           -----------------------                    ------------
           2003                                                544
           2004                                                246
           2005                                                164
           2006                                                  -
           Thereafter                                            -
                                                      ------------
                                                               953
                                                      ============

           As for the  commitments  in respect of the land  leasing  fees of the
           Hotel Division, (see Note 19.C).

           Total rental  expenses under the company's  operating  leases for the
           years ended  December 31, 2002,  2001 and 2000 were NIS 544 thousand,
           NIS 319 thousand and NIS 858 thousand, respectively.

      (2)  The Company holds  long-term  lease rights of land in the vicinity of
           Maalot in the  Galilee,  for a period  of 49 years  plus an option to
           extend  it for  additional  49 years.  According  to the terms of the
           tender  the  Company,  within a period  of 3 years  (up to the end of
           2003) and subject to receiving  building permits and other approvals,
           will establish a vacation and recreation village to include up to 650
           vacation units. Moreover, the Company engaged, in accordance with the
           terms  of the  tender,  in  development  agreements  with  the  local
           authorities  and with the Israel  Land  Administration.  The  Company
           undertook  to invest up to NIS 9.2  million for  long-term  leasehold
           fees and for the development of  infrastructure  for the land.  Until
           December 31, 2002, the Company made such investments in the amount of
           NIS 8.8 million.  The total cost of the project is estimated at U.S.$
           45 million.

           As a result of the economic situation and in view of the state of the
           tourist branch in particular,  implementation of the project has been
           delayed.  The Company's  management  estimates that the net amortized
           book value of the  investment  as of  December  31, 2002 is not lower
           than its fair value.

      (3)  The lease  agreements  which SLS (a  subsidiary  company)  signs with
           lessees  in  respect of  commercial  areas are for an  initial  lease
           period of five years (on average) with respect to anchors (that lease
           relatively  larger  areas) and for shorter  periods  with  respect to
           other  lessees,  with an option being granted to the lessee to extend
           the lease period,  and they are usually drawn up in a standard  form.
           The lease  payments  according  to the  agreements  are  comprised of
           minimum  lease  payments per square  meter or a  percentage  of sales
           turnover,  whichever  higher.  The  agreements  include,  inter alia,
           provisions  regarding  participation  in advertising  expenses of the
           commercial center under construction, the payment of management fees,
           etc.

                                                                              49
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 20 - COMMITMENTS AND LIENS ON ASSETS (CONT'D)

A.    COMMITMENTS  (CONT'D)

           In accordance with the lease agreements with the future lessees,  the
           lessee  provides  additional  security  for  the  fulfillment  of his
           liabilities  according to the  agreement and deposits with SLS on the
           date of signing  the  contract an amount that is equal to the minimum
           lease payments as defined in the lease agreement, in respect of three
           months rent. The said payment will be held as a deposit by the lessor
           until the  beginning  of the lease  period,  from  which  date on the
           payment will be  considered as the minimum lease payment for the last
           three months of the lease period,  and accordingly the amount so paid
           with the addition of linkage increments, will be offset from the rent
           calculated  as a percentage  of sales  turnover  that will be paid in
           respect of the last three months of the lease period.

      (4)  Within the terms of agreement  with EIL and EMI, which its effect was
           extended  till  December 31, 2005,  for the  allocation of (direct as
           well as  indirect)  expenses  of the EIL Group  internal  departments
           (legal  investments,  accounting  and  taxation).  Each  party to the
           agreement is entitled to terminate  the  agreement at the end of each
           12-month period by giving an advance notice to the effect.  Under the
           agreement, the expenses are to be divided so that EIL bears 35%, with
           the Company  and EMI,  each,  32.5% (a  percentage  established  by a
           general estimate of the Group companies'  managements,  of the actual
           utilization rate of these departments'  services by each of the Group
           companies),  unless the actual utilization rate deviates by more than
           10% from these  percentages.  Should the  deviation be more than 10%,
           the parties would be charged on the basis of actual-cost allocation.

      (5)  In connection with the sale of its NM and MRI businesses to GEMS (see
           Note 31),  the  Company  committed  to  maintain  equity  equal to or
           greater than U.S.$ 20 million in 2002 and U.S.$ 10 million in 2003.

      (6)  B.H. was granted an option from the management  company,  exercisable
           until September 30, 2003, to purchase from the management company 33%
           of its  ownership  and  controlling  rights  in a  company  under its
           ownership,  which was incorporated to acquire the business (including
           tangible assets,  hotel  management  agreements,  management  rights,
           rights to use trade  names,  etc.) of the Park Plaza  chain in Europe
           (hereinafter "the acquired company"). As part of the agreement,  B.H.
           granted the management company a loan of US$ 5 million.

           The level of B.H.'s  investment may increase by US$ 2.25 million,  if
           and to the extent that this amount is  required  for the  purchase of
           other assets by the acquired company.  The management  company has an
           option,  exercisable  up to the end of one year or at any time in the
           event of  disagreement  between the parties  regarding the management
           company's  rights,  to acquire part of the company,  in consideration
           for the refund of the cost of B.H.'s original investment.



                                                                              50
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 20 - COMMITMENTS AND LIENS ON ASSETS (CONT'D)

A.    COMMITMENTS  (CONT'D)

      (7)  HOTEL MANAGEMENT AND CONSULTATION AGREEMENTS

           a.  HOTELS IN HOLLAND (OWNED BY VHCV AND UTRECHT  VICTORIA HOTEL B.V.
               ("UVH")),  A HOTEL IN BELGIUM (OWNED BY AP) AND HOTELS IN ENGLAND
               (OWNED BY ERH, GRANDIS AND ALORA)

               The Park Plaza Hotels Europe Ltd. ("the Management Company") owns
               the  concession  to use the Park Plaza  brand name and to operate
               hotels under its management system.

               The hotels are directly  managed by the  management  company,  in
               return  for an  annual  fee of 7% of the  operating  profit.  The
               companies  also share in the necessary  expenses  incurred by the
               management   company  in  the   performance  of  its  contractual
               obligations.  Should the companies  sell the hotels owned by them
               or should  the  control  in any one of them be  transferred  to a
               third party,  the companies are to pay the management  company an
               amount  calculated as being 7% of the (gross) operating profit of
               the year preceding that sale or transfer.  In such case,  VHCV is
               also to pay 2.5% of any gain derived from the sale of the hotel.

               Information pertaining to the leasing of SPP Hotel to an external
               hotel company is provided in Note 19c.(ii).

               With  regard to the hotel  owned by AP, it has been  agreed  that
               should  the  operating  profit  (gross) of the hotel be less than
               Euro 1,735 thousand (NIS 8,623 thousand) during each of the first
               5 years,  then the management  company undertook to pay an amount
               equal to the difference between that amount and the amount of the
               actual (gross) operating profit. Implementation of this condition
               has been  postponed by agreement of the parties,  and the parties
               are   discussing   amending   or   rescinding   this   condition.
               Accordingly,  the  financial  statements  do not  include  income
               receivable.

           b.   HOTEL IN HUNGARY (UNDER CONSTRUCTION) - ANDRASSY 25 KFT. HOTEL
                ("ANDRASSY")

               In December 2002 the hotel  management  company  ("HMC") signed a
               20-year  agreement  with  Andrassy  (which owns the rights in the
               (preserved)  National  Ballet  Building for  operating  the hotel
               following the building's  renovation and conversion into a hotel.
               In  exchange,  the operator is entitled to receive a basic salary
               equaling a percentage of the (gross) revenues,  plus a management
               fee equaling a percentage of the operating  income.  The operator
               guarantees that the adjusted  operating  income will not be lower
               than  fixed  amounts  stipulated  in  the  agreement.   Moreover,
               Andrassy participates in other expenses incurred by HMC and which
               were  required   within  the  framework  of  fulfillment  of  its
               responsibilities  (marketing  expenses  etc.).  This agreement is
               contingent  upon the  approval of the boards of  directors of the
               two contracting companies.

      (8)    FRANCHISE AGREEMENTS

             Within the terms of the management  agreements B.H. Group companies
             ("the  Companies")  were  granted  a  secondary  franchise  by  the
             management  company  permitting the use of the name "Park Plaza" in
             consideration  for monthly  royalties  of up to 3% of the  revenues
             ("the Franchise Agreement").

             The Companies  undertook to indemnify Park Plaza  International and
             related parties for any claim,  damage or expense incurred by it in
             connection  with  the  hotels  or the  performance  of  Park  Plaza
             International's  commitments  under the  agreement.  The  Franchise
             Arrangement  is to remain in force  throughout the entire period of
             the management agreements.


                                                                              51
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 20 - COMMITMENTS AND LIENS ON ASSETS (CONT'D)

A.    COMMITMENTS  (CONT'D)

       (9)   In October  2001 an  agreement  between  B.H.  and CDPM,  a company
             controlled by controlling shareholders of the Company, was approved
             by the shareholders meeting. In accordance with that agreement CDPM
             will  provide  logistical,  planning  and  supervisory  services in
             connection with the renovation of the Bucuresti  hotel, in exchange
             for consideration  equal to the lower of 5% of the renovation costs
             (excluding  general  and  administrative   expenses  and  financing
             expenses) or 5% of U.S.$ 30 million.

      (10)    The company is committed to indemnify  its officers and  directors
              at a maximal  amount  permitted  by law and by its own bylaws,  in
              connection  with any act or deed  carried out in the  discharge of
              their duties.

              Notwithstanding the above, the Company's  shareholders approved in
              the General Meeting held in October 2001, the granting of advanced
              indemnification certificates to officers and directors,  including
              those acting in its  subsidiaries.  The total  indemnity  will not
              exceed  the  lower  of 25% of the  share  capital  of the  Company
              presented  in  the  financial   statements  at  the  time  of  the
              indemnification, or U.S.$ 50 million, in addition to such amounts,
              if  any,  to be  paid  by the  insurers  in  accordance  with  its
              insurance  policy,  as exist from time to time, for causes covered
              by  such  indemnification   policies.  The  General  Meeting  also
              approved  an  exemption  from  liability  in respect to any damage
              caused  to the  Company  by breach  of duty of care  committed  by
              officers and directors.

              The directors and officers of the Company are covered by insurance
              of  up to  U.S.$  40  million  within  the  framework  of a  joint
              insurance  policy valid through  September  2003 for the EIL Group
              companies.  The Company bears 33% of the insurance  cost. See also
              Note 28.B.2.

              In September 2000 EIL acquired "Run off" coverage for itself,  EMI
              and the  Company,  up to a limit of U.S.$ 20  million  beyond  the
              coverage of U.S.$ 40 million included in the additional  policies,
              up to a six-year  period.  The premium for this coverage  would be
              U.S.$  0.81  million  for the  entire  six  years  (33%  for  each
              company).  This  insurance  covers  officers  in respect of events
              occurring  prior to this date so long as unreported and unknown in
              May 1999.

       (11)   In the framework of the  agreement  for the sale of the plant,  as
              detailed  in Note 31,  the  Company  undertook  to  indemnify  the
              purchasers against the losses,  costs,  expenses and damages which
              arise out of breaches of  representations,  breaches of agreements
              warranties,  taxes, other excluding liabilities (as defined in the
              agreement),  environmental  covenants, and indemnities relating to
              the transferred employees etc. Some of the indemnities are limited
              as to their amount and some of them - for unlimited amounts;  some
              of  them  for a  period  of 24  months  and  some of them - for an
              unlimited  period.  However,  the  maximum  indemnity,   excluding
              environmental covenants, shall not exceed U.S.$ 4 million.

       (12)   See Note 29.B.



                                                                              52
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 20 - COMMITMENTS AND LIENS ON ASSETS (CONT'D)

B.    LIENS AND COLLATERALS

       (1)    To  secure a credit  of  approximately  NIS 560  million  that the
              Company received from a bank in Israel,  the Company  undertook to
              comply with covenants which include, inter alia, an undertaking to
              the bank  regarding  the  maintenance  of a  minimum  ratio of the
              Company's shareholders' equity during the period the credit to its
              total assets.  To secure the credit that it received,  the Company
              granted  the bank for the  period  of the  credit,  a fixed  first
              charge  unlimited  in an  amount,  and an  assignment  by way of a
              charge on deposits and securities totaling NIS 260 million.

              The  Company  undertook  to  pledge  in favor of the bank the B.H.
              shares and shares of  subsidiaries  owned by it as demanded by the
              bank. In addition,  the Company  undertook  not to create  charges
              (current  and/or fixed of any degree) in favor of third parties on
              its  existing  or future  assets,  without  receiving  the  bank's
              approval  (excluding  charges on new assets  and/or  projects  -in
              favor of the party  financing  the  acquisition  and/or  execution
              and/or in the event of refinancing). The Company also undertook to
              provide  additional  collateral,  as  detailed  in the  agreement,
              including: first or second tier charges on assets and rights, that
              it will purchase with the proceeds of all advances  provided to it
              in the  framework of a credit line.  Should the Company not comply
              with the  financial  covenants  in  whole  or in  part,  or on the
              occurrence of certain events specified in the agreement,  the bank
              will be entitled to demand immediate payment of these credits.

       (2)    Approximately NIS 11 million of the Company's deposits are used as
              collateral  for bank letters of guarantee  totaling  approximately
              NIS 17  million  which  a bank  provided  in  favor  of  financial
              institutions. (See Note 28.I).

       (3)    ASTRID PARK PLAZA N.V ("AP")

              As security  for a  credit-line  provided to a supplier of AP by a
              local  bank,  AP  deposited   with  the  bank  Euro  871  thousand
              (approximately NIS 4,300 thousand).

      (4)     VICTORIA HOTEL C.V. ("VHCV") AND UTRECHT VICTORIA HOTEL B.V
              ("UVH")

              To secure amounts received under a loan agreement,  designated for
              refinancing hotel activities, between VHCV, VHRI, UVH and Mandarin
              Hotel B.V. (a company in the Red Sea Hotel Company),  as joint and
              several  borrowers  ("the  Borrowers")  and  Depfa  Bank AG  ("the
              Bank"),  the Borrowers  received a loan of Euro 56.7 million.  The
              shareholders  of the Borrowers  (VEI,  VEII and VEIII)  provided a
              guarantee  to the  Bank to  secure  the  liability  of each of the
              Borrowers to it. According to the agreement  between the Borrowers
              and their  shareholders,  Euro 49.9  million out of the total loan
              amount was  designated  for the hotels  owned by VHCV and UVH, and
              the balance of Euro 6.8 million was earmarked  for Mandarin  Hotel
              B.V.

              As security for repayment of the loan, the Bank was granted, among
              other  things,  a first  ranking  mortgage on the Victoria  Hotel,
              Utrecht Hotel and Mandarin Hotel  properties and a first-tier lien
              on all the moveable property located thereon; a first-tier lien on
              the Borrowers'  rights under existing  rental  agreements;  rights
              under insurance  policies  covering the real estate;  rights under
              management    agreements;    issued   share   capital   (including
              accompanying rights) and rights in certain bank accounts.

              In  addition,  the  Borrowers  subordinated  to the Bank  that all
              shareholder loans to rank after the bank's loans and undertook not
              to pay the shareholders' loans without the Bank's consent.

              The borrowers and the guarantors  signed a  mutual-indemnification
              agreement,  according to which the Mandarin  Hotel Company and VEI
              (its  shareholder)  would indemnify VEII,  VEIII and the Borrowers
              (not including Mandarin) for any amount borne by VEII and VEIII in
              respect of that guarantee. It was also agreed between VEI and VEII
              that they would both indemnify each other for any expense incurred
              by either  one of them  which  exceeds  50% of the  amount  due in
              respect of the loan.



                                                                              53
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 20 - COMMITMENTS AND LIENS ON ASSETS (CONT'D)

B. LIENS AND COLLATERALS (CONT'D)

       (5)    SHAW HOTELS HOLDINGS B.V. ("SHH")

              To secure its  liabilities  under a loan  agreement  designated to
              finance  the SPP Hotel in London (see Note 19.C)  following  liens
              were  granted in favor of the Bank:  a first  mortgage on its real
              estate and  moveable  property,  including  a  first-tier  lien on
              rights  to use the  trade  name of Park  Plaza,  insurance  rights
              connected to real estate, rights under management agreements,  the
              issued  share  capital of SHH and the Hotel's  operating  company,
              rights in certain bank accounts and  goodwill;  a floating lien on
              all SHH's assets; the subordination of all shareholders'  loans to
              the demands of the bank.

              In  addition,  the Bank  obtained  from the Red Sea Hotels Group a
              guarantee  for  the  repayment  of  the  credit-line  up to  pound
              sterling 5 million EIL  undertook to indemnify  the Red Sea Hotels
              Group for up to half of that guarantee, if ever called.

              As security for an additional line of credit granted to SHH by the
              Bank,  EIL and the Red Sea  Hotels  Group  jointly  and  severally
              provided a guarantee of up to the line's ceiling of pound sterling
              2.25 million. In addition to the above mentioned, and with respect
              to the hotel lease transaction (see Note 19.C.(ii)), the financing
              bank  received  from the  Company  an  indemnification  commitment
              regarding any damage  incurred by the bank following its agreement
              to the said  transaction,  as well as a  commitment  from B.H.  to
              provide  additional  security  besides that mentioned above if the
              hotel  is  not  refinanced.  As at the  date  of  approval  of the
              financial  statements  B.H.  and a company  of the Red Sea  Hotels
              Group are conducing  negotiations with foreign banks regarding the
              refinancing  of the SPP hotel.  In  addition,  as  security  for a
              credit-line granted by other Bank to SPP and VPP (see item 6), EIL
              provided the Bank a guarantee of pound sterling 0.25 million.

      (6)     VICTORIA LONDON HOTEL HOLDING B.V. ("VLH")

             In order to secure loans  designated  for  financing VPP Hotel (see
             Note 19.C), VLH provided the banks first-tier  (fixed and floating)
             liens  on  all  its  assets,  including  land,  moveable  property,
             goodwill and intangibles. In addition, a lien has been granted over
             the shares of the  investee  companies by their  shareholders.  VLH
             also undertook to refrain from  disposing of the guaranteed  assets
             without approval from the financing banks.

              Furthermore,  VLH  agreed  that  all of its  liabilities  would be
              second  priority  in  relation  to the bank  loans.  VLH also gave
              covenants and undertakings  with respect to, inter alia, the scope
              of the  development  and date of completion,  and meeting  certain
              performance  milestones by certain deadlines;  concerning the sale
              of  assets,   amendments   to  the   articles  of   incorporation,
              modification in its holding  structure,  carrying out transactions
              not in the ordinary  course of business,  management of operations
              other than the hotels,  issuance  of  additional  shares,  minimal
              shareholders' equity (including  shareholder loans),  transactions
              with  related  companies,  dividend  distribution,   repayment  of
              shareholder  loans,  rights stemming from  management  agreements,
              rights in certain bank accounts,  ratio of shareholders' equity to
              the  project's  cost,  ratio of net income to  current  bank loan,
              occupancy rate,  average room price etc., during the entire credit
              term.

              The  Company  is  guarantor  for VLH  undertakings  under the loan
              agreement up to an amount of pound  sterling  1.25 million or 2.5%
              of the cost of constructing the hotel whichever higher.



                                                                              54
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 20 - COMMITMENTS AND LIENS ON ASSETS (CONT'D)

B. LIENS AND COLLATERALS (CONT'D)

      (7)    GRANDIS NETHERLANDS HOLDING B.V. ("GRANDIS")

             In order to secure loans received by it, Grandis provided the banks
             first-tier (fixed and floating) liens on all its assets,  including
             land, moveable property,  goodwill and intangibles.  In addition, a
             lien has been granted  over the shares of Grandis to the  financing
             bank.  Grandis  also  undertook  to refrain  from  disposing of the
             guaranteed assets without approval from the financing banks.

             Furthermore,  Grandis agreed that all of its  liabilities  would be
             second  priority in relation to the bank loans.  Grandis  also gave
             covenants and  undertakings  with respect to, inter alia, the scope
             of the  development  and date of  completion,  and meeting  certain
             performance milestones by certain deadlines; concerning the sale of
             assets,  amendments to the articles of incorporation,  modification
             in its holding  structure,  carrying  out  transactions  not in the
             ordinary  course of business,  management of operations  other than
             the hotels,  issuance of additional shares,  minimal  shareholders'
             equity  (including  shareholder  loans),  transactions with related
             companies,  dividend distribution,  repayment of shareholder loans,
             rights stemming from management agreements,  rights in certain bank
             accounts,  ratio of  shareholders'  equity to the  project's  cost,
             ratio of net income to current bank loan,  occupancy rate,  average
             room price etc., during the entire credit term.

      (8)    RIVER BANK HOTEL HOLDING B.V. ("RBH")

             In order to secure  RBH's  liabilities  to the bank  financing  the
             construction  of RPP Hotel  (see Note  19.C),  RBH  granted a first
             mortgage (fixed and floating) on all its assets,  including  rights
             in real estate,  movables,  agreements,  goodwill, etc. In addition
             RBH assigned its rights  under the leasing  agreements.  RBH shares
             were pledged to the bank and its liabilities  were  subordinated to
             the repayment of the bank loans.

             The  Company  and a  company  of  the  Red  Sea  Hotels  Group  are
             guarantors for the  fulfillment  of commitments  under an agreement
             for an increase in  financing  by up to Pound  Sterling 10 million.
             The  guarantee  of  each  one of the  guarantors  is for 50% of the
             additional  credit  facility.  As of December  31, 2002  additional
             credit  in the  amount  of  Pound  Sterling  6.1  million  has been
             utilized.

      (9)    PARK PLAZA HOTEL (SANDTON) (PTY) LTD. ("SANDTON")

             To ensure Sandton's undertakings to the bank, Sandton mortgaged the
             Hotel in a first  mortgage  and  registered a charge on its movable
             property. In addition, Sandton's shareholders made a deposit in the
             bank in the name of Sandton in which  B.H.'s  share  totals NIS 799
             thousands.  In the  event of a breach  of the  terms of the loan by
             Sandton,  the deposit will be forfeited and  concurrently  the bank
             will be entitled  to realize  the Hotel on account of repaying  the
             balance of the loan.

      (10)   SC BUCURESTI TOURISM SA ("BUCURESTI")

             The Company granted a first-tier lien on a bank deposit of U.S.$ 14
             million and on the rights and income  deriving  from it in order to
             secure  borrowings  of  U.S.$  28  million  from  a bank  that  the
             controlling shareholder in Domino ("BHEE") obtained, to finance its
             investment,  indirectly  through  Domino,  in the rights in a hotel
             complex in Romania.  In addition,  BHEE granted a fixed lien on the
             Domino  shares that it owns and a floating  lien on all of Domino's
             assets and a lien on the Bucuresti shares. The Company undertook to
             grant a lien on BHEE  shares  that it owns and a  floating  lien on
             BHEE's  assets.  The bank received a commitment  that no changes in
             the  company's  ownership  and control  structure  would take place
             throughout  the  entire  credit  term.  In  addition,  the  Company
             provided a guarantee, unlimited in time or amount, to secure BHEE's
             bank  loans.   The  bank  restricted  its  right  to  realize  this
             guarantee,  by  linking it to the terms of the  realization  of the
             Bucuresti  shares  owned by Domino  (except for  certain  instances
             stipulated in the agreement).



                                                                              55
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 21 - REVENUES

Consist of the following:

<TABLE>
<CAPTION>
                                                                                            YEAR ENDED DECEMBER 31,
                                                                             -----------------------------------------------
                                                                                     2002             2001              2000
                                                                             ------------     ------------       -----------
                                                                                           ADJUSTED NIS (THOUSANDS)
                                                                             -----------------------------------------------
Operating and managing hotels:
<S>                                                                              <C>               <C>               <C>
Rooms                                                                            137,359           94,312            70,060
Food and beverage                                                                 50,757           36,768            29,692
Rental of commercial areas                                                         6,361            5,527             4,008
Other services                                                                    16,173            5,291             4,328
                                                                             ------------     ------------       -----------
                                                                                 210,650          141,898           108,088
                                                                             ------------     ------------       -----------
Revenue from contracts                                                             1,538           10,221            20,367
                                                                             ------------     ------------       -----------
                                                                                 212,188          152,119           128,455
                                                                             ============     ============       ===========


NOTE 22 - COST OF REVENUES

Consist of the following:
                                                                                            YEAR ENDED DECEMBER 31,
                                                                             -----------------------------------------------
                                                                                     2002             2001              2000
                                                                             ------------     ------------       -----------
                                                                                           ADJUSTED NIS (THOUSANDS)
                                                                             -----------------------------------------------
COST OF HOTEL OPERATION

Salaries, wages and employee benefits                                            71,334           51,097            39,564
Food beverage and other hotels consumption                                       17,591           14,077             6,766
Other hotels operation expenses                                                  46,841           32,518            23,594
                                                                             ------------     ------------       -----------
                                                                                135,766           97,692            69,924
                                                                             ------------     ------------       -----------
COST OF LONG-TERM CONTRACTS

Sub contractor                                                                    1,419            6,589            17,048
Salaries, wages and employee benefits                                                 -              826             1,113
Other                                                                                 -               36                83
                                                                             ------------     ------------       -----------
                                                                                  1,419            7,451            18,244
                                                                             ------------     ------------       -----------
TOTAL                                                                           137,185          105,143            88,168
                                                                             ============     ============       ===========


NOTE 23 - HOTELS' DEPRECIATION, AMORTIZATION AND OPERATION EXPENSES

                                                                                            YEAR ENDED DECEMBER 31,
                                                                             -----------------------------------------------
                                                                                     2002             2001              2000
                                                                             ------------     ------------       -----------
                                                                                           ADJUSTED NIS (THOUSANDS)
                                                                             -----------------------------------------------
Depreciation and amortization                                                   35,317            19,475            12,782
Operation expenses                                                              27,368            12,681            10,342
                                                                             ------------     ------------       -----------
                                                                                62,685            32,156            23,124
                                                                             ============     ============       ===========

</TABLE>

                                                                              56
<PAGE>

NOTE 24 - GENERAL AND ADMINISTRATIVE EXPENSES


<TABLE>
<CAPTION>
                                                                                            YEAR ENDED DECEMBER 31,
                                                                             -----------------------------------------------
                                                                                     2002             2001              2000
                                                                             ------------     ------------       -----------
                                                                                           ADJUSTED NIS (THOUSANDS)
                                                                             -----------------------------------------------
<S>                                                                              <C>               <C>              <C>
Salaries, wages, employee benefits and director fee                            * 13,984            9,505            11,475
Depreciation and amortization                                                       762            1,164             1,211
Office, rental and maintenance                                                    1,319            1,937             2,894
Professional experts                                                              7,492            7,962             3,971
Others                                                                            8,624            5,717             4,158
                                                                             ------------     ------------       -----------
                                                                                 32,181           26,285            23,709
                                                                             ============     ============       ===========

* Including dividend in the amount of NIS 2,531 thousands.

NOTE 25 - FINANCE INCOME (EXPENSES) - NET

                                                                                            YEAR ENDED DECEMBER 31,
                                                                             -----------------------------------------------
                                                                                     2002             2001              2000
                                                                             ------------     ------------       -----------
                                                                                           ADJUSTED NIS (THOUSANDS)
                                                                             -----------------------------------------------
Deposits and cash equivalents                                                    21,550           89,274            32,895
Marketable Securities                                                              (335)             864             5,676
Short-term credits (i)                                                          (18,880)         (32,404)          (31,513)
Long-term debts                                                                  (6,692)         (47,586)          (18,421)
Forward contracts                                                                     -                -           (27,116)
Other (ii)                                                                       (5,586)          (1,825)             (351)
                                                                             ------------     ------------       -----------
Finance income (expenses) incurred                                               (9,943)           8,323           (38,830)
Finance expenses capitalized (iii)                                               22,994           58,021            18,231
                                                                             ------------     ------------       -----------

                                                                                 13,051           66,344           (20,599)
                                                                             ============     ============       ===========
</TABLE>

(i)   Net of finance expenses charged to the shareholders' equity, in respect of
      hedging of net  investment in foreign  subsidiaries,  in the amount of NIS
      36,487 thousand (2001 - NIS 7,238 thousands, 2000 - NIS 8,991 thousands)

(ii)  Including  exchange rate differences and inflationary  erosion of monetary
      items.

(iii) The annual  capitalization  rate applicable to the non-specific  borrowing
      cost is 4.5% (2001 - 14%).

                                                                              57

<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 26 - OTHER (EXPENSES) INCOME, NET

<TABLE>
<CAPTION>
                                                                                            YEAR ENDED DECEMBER 31,
                                                                             -----------------------------------------------
                                                                                     2002             2001              2000
                                                                             ------------     ------------       -----------
                                                                                           ADJUSTED NIS (THOUSANDS)
                                                                             -----------------------------------------------
<S>                                                                             <C>              <C>                 <C>
Decrease in value of investments and loans
  not of a temporary nature                                                      (4,012)        (13,004)                 -
Impairment of fixed assets                                                      (16,327)              -                  -
(Loss) gain from sale of fixed assets, net                                         (171)           (482)               158
Management fees                                                                       -             325                623
Others, net                                                                      (1,405)           (205)             1,886
                                                                             ------------     ------------       -----------

                                                                                (21,915)        (13,366)             2,667
                                                                             ============     ============       ===========

NOTE 27 - EARNINGS PER SHARE

A. Data used in the  computation  of basic earning per ordinary  share (NIS 0.05
par value):

                                                                                            YEAR ENDED DECEMBER 31,
                                                                             -----------------------------------------------
                                                                                     2002             2001              2000
                                                                             ------------     ------------       -----------
                                                                                           ADJUSTED NIS (THOUSANDS)
                                                                             -----------------------------------------------

       Net (loss) income from continuing operation                              (27,219)          23,405           (34,351)

       Net income from discontinuing operation                                   90,693           34,587            77,940

       Weighted number of ordinary shares
        (NIS 0.05 par value)                                                 16,690,643       16,690,643        16,690,643

B.    Data used in the  computation of diluted  earnings per ordinary share (NIS
      0.05 par value):

                                                                                            YEAR ENDED DECEMBER 31,
                                                                             -----------------------------------------------
                                                                                     2002             2001              2000
                                                                             ------------     ------------       -----------
                                                                                           ADJUSTED NIS (THOUSANDS)
                                                                             -----------------------------------------------

       Net (loss) income from continuing operation                              (29,363)          23,425           (34,351)

       Net income from discontinuing operation                                   90,693           34,587            77,940

       Weighted number of ordinary shares
        (NIS 0.05 par value)                                                 17,424,643       16,727,855        16,690,643

</TABLE>
C.       In order to examine  that the  exercise of  convertible  securities  is
         reasonable,   the  present  value  of  these  securities  was  computed
         according  to a  discount  rate  of 8%  (December  31,  2001 - 4%)  for
         securities in NIS unlinked.




                                                                              58
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 28 - CONTINGENCIES

A.       The Company and subsidiary companies are involved in litigation arising
         out of the ordinary  course of  business.  Although the outcome of such
         litigation  is uncertain  at this time,  management  believes  that the
         outcome of such litigation  will not have a material  adverse effect on
         the financial position of the Company.

B.       (1)   On September  8, 1999,  the Company was served with a claim and a
               motion for  recognition of the claim as a  representative  claim.
               This claim was filed against the Company,  Elbit Medical  Imagine
               Ltd.  ("EMI"),  (the  company's  parent  company),  Elbit Medical
               Holding Ltd., Elron and six former directors of the Company.  The
               motion  was  filed on  behalf of all  persons  who were  minority
               shareholders  of the  Company  at the date of  submission  of the
               claim,  as well as all minority  shareholders  of the Company who
               held Company's  shares on February 18, 1999. The main  allegation
               of the claim is that  EMI,  through  the  actions  of the  former
               directors of the Company,  caused  discrimination of the minority
               shareholders.

               The requested relief is approximately  U.S.$ 603 thousand for the
               plaintiff and approximately  U.S.$ 158 million for the damages to
               the represented group, plus legal expenses. Following the Court's
               decision  in the claim  mentioned  in  clause  B.ii.  below,  the
               parties  agreed to postpone the hearing of the case until a final
               decision  will be given on the  plaintiffs  appeal  in the  other
               claim, as stated in clause B.2. below.

               Management,  based on a legal advice received,  is of the opinion
               that  the  ultimate  outcome  of  this  claim,  the  request  for
               recognizing the claim as a  representative  claim and the effect,
               if any, this may have on the Company can not be estimated at this
               stage and thus no provision  has been  recorded in the  financial
               statements.

          (2)  On November 2, 1999, a claim and a motion for  recognition of the
               claim as a  representative  claim were filed against the Company,
               EMI,  Elbit Medical  Holdings  Ltd.,  Europe Israel  (M.M.S) Ltd.
               ("EIL"),  (indirect  parent  company  of  the  Company),  Control
               Centers,  Marina Herzlia Limited  Partnership  1998, Elron and 25
               past and present directors in the above companies. The motion was
               served  on behalf of those  who held  shares  of the  Company  on
               September 6, 1999,  and continued to hold such shares on the date
               of the claim, excluding the respondents.

               The  claimants  allege  that  the  minority  shareholders  of the
               Company  have  been  discriminated  as a  result  of the  various
               activities  carried out by its controlling  shareholders  and its
               Board of  Directors.  The remedy which has been  requested by the
               claimants is that EMI be compelled to execute the alleged buy-out
               shares at U.S.$ 14 per share.  Alternatively,  the Company and/or
               EMI and or other  shareholders  in the  Company be  compelled  to
               purchase  the  claimants'  shares in the Company  according to an
               external  valuation,  or alternatively that the claimants be paid
               compensation  for the damages which they  allegedly  suffered and
               the annulment of certain transactions with controlling parties.

               On August 16, 2000,  the District  Court of Haifa  dismissed  the
               Application  to recognize  the claim as a  Representative  Claim.
               Notwithstanding the above, the claim itself remains.  Some of the
               plaintiffs  filed  applications  to the  Israeli  High  Court for
               permission to file an appeal on this dismissal.  In addition, the
               Government's  Attorney General submitted his supportive  position
               with  the  plaintiffs  allegation  to the  Court.  Following  the
               company's claim that the Court's fees are  inappropriate to these
               type of claim,  on August 3, 2001, the District Court ordered the
               Plaintiffs  to pay  Courts'  fees in respect of some parts of the
               claim,  in the sum of NIS 20 million not later than September 10,
               2001, otherwise their applications will be deleted, in respect to
               those  parts of the claim  for which the fees  would not be paid.
               Following  a  request  by the  plaintiffs  the Court  decided  to
               postpone the payment of the fees until further decision.



                                                                              59
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 28 - CONTINGENCIES (CONT'D)

               In a hearing  that took  place on April 25,  2002,  the  District
               Court  showed a strong  tendency to accept the  plaintiffs'  view
               concerning  the  court  fees.  However,   the  Company's  counsel
               strongly  opposed  such  approach  of the  court,  and  in  their
               opinion, succeeded in shaking the court's position with regard to
               its ability to cancel the  previous  decision of the court in the
               interim  procedure  or its  ability to enable the  plaintiffs  to
               postpone the payment of these fees.  The court  decided to render
               its ruling  regarding  the court fees at a later date,  which has
               not been determined as yet.  Management,  based on a legal advice
               received,  is of the  opinion  that the  ultimate  outcome of the
               claim and the effect,  if any, this may have on the Company,  can
               not be  estimated  at this stage and thus no  provision  has been
               recorded in the financial statements.

               On January 26,  2003,  the Company  received a letter from one of
               the  insurers  ("the  Insurer")  of EIL, EMI and the Company (the
               "Insured  Companies"),  that  provides  insurance  to the Insured
               companies including  insurance  pertaining to this representative
               claim.

               In this letter, the Insurer made certain  allegations against the
               Insured  Companies,  including,  inter  alia,  that  the  Insured
               Companies  breached their disclosure duties under section 6(a) to
               the Insurance  Contract Law,  1981, by failing to disclose to the
               Insurer material  information prior to the issuance of additional
               cover to the policy purchased by EIL (the "Policy"), effective as
               of  July  1999  (the  "Additional   Cover"),  and  prior  to  the
               replacement  of  the  Policy  and  the  Additional  Cover  by the
               issuance  of a new  policy  effective  as  of  August  1999  (the
               "Replacement   Cover").   The  letter  states  that  the  Policy,
               Additional Cover and Replacement Cover issued by the Insurer will
               be   cancelled   unless  the  Insured   Companies   indicate  the
               circumstances  were different than those described in the letter.
               The Company  legal counsel sent a reply on behalf of EIL, EMI and
               the Company on March 20, 2003,  in which the  allegations  of the
               Insurer  were  rejected.  As of the date of the  issuance  of the
               financial  statements the company has not received an answer from
               the Insurer to the Company's letter.

C.       The Company is named as a defendant  in a number of lawsuits  and other
         claims filed by  distributors - of which some have no specified  amount
         of  requested  damages,  while the others  demand  compensation  by the
         Company,  for  damage  allegedly  caused by its  alleged  breach of the
         agreements  relating to the Sale  Transaction in 1998, in the aggregate
         amount of U.S.$ 31 million.  At this stage, the Company's legal counsel
         cannot estimate the outcome of these lawsuits and claims.  However, the
         Company has included in its financial statements  provisions which - in
         management's  opinion,  at  the  date  of  issuance  of  the  financial
         statements based,  inter alia, on its legal counsel for this matter and
         on its past experience,  are considered adequate to cover the costs and
         resources necessary to resolve the obligations under these claims.
         The aggregate  amount of the claims as mentioned  above,  was decreased
         from an amount of $80 million in December 31, 2001, to a total of U.S.$
         31 million,  as a result of  negotiations  carried out with part of the
         distributors, which negotiations lead to settlements with claimants. As
         a result  of such  settlements  being  reached  during  the year  ended
         December 31, 2002 no costs  incurred  beyond the  provisions  that were
         included in the financial statements.

D.       The Company is a defendant in several  claims  filed by  customers  who
         previously purchased medical equipment from the company (including some
         demanding the  cancellation of sales and service  agreements)  totaling
         approximately  U.S.$ 6 million.  These claims  include  mainly  alleged
         damages caused to medical equipment acquired from the Company.

         The financial  statements of the Company include provisions,  which, in
         management's  opinion,  at the  date of  preparation  of the  financial
         statements,  based on the advice of its  professional  counsel for this
         issue and on its past  experience,  were  sufficient to cover the costs
         and resources required for settling these claims.



                                                                              60
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 28 - CONTINGENCIES (CONT'D)

E.        Regarding  proceedings  which are currently pending in Romania against
          subsidiaries (see Note 19.C).

F.       The  Company is required  to pay  royalties  to the Office of the Chief
         Scientist ("OCS") in respect of sales of products developed with grants
         provided by the latter.  The royalties are computed on the sales volume
         of  these  products  at  percentages  ranging  from  1% to 5% up to the
         aggregate  amount of the grants.  The Company  received  correspondence
         from the OCS,  requesting  the  furnishing  of certain data in order to
         ascertain its obligation in respect of royalties due to the OCS.
         The  liability to the OCS in respect of the sale of the MRI  operations
         to GEMS,  determined  at U.S.$ 11 million,  and was allocated at 60% to
         the Company and 40% to GEMS. In addition, it was agreed that the NM and
         MRI technologies,  products and components would not be transferred out
         of Israel  unless  GEMS  first  seeks  OCS  approval.  Pursuant  to the
         agreement between the Company,  GEMS and the OCS, the Company undertook
         - should  GEMS  sell  MRI  products  containing  certain  know-how  and
         components  financed  with the  assistance  of the OCS - to pay the OCS
         royalties  in excess of U.S.$  1.5  million.  The  Company  received  a
         written  notification from the OCS,  requiring  details  concerning the
         allocation of the proceeds  received from GEMS, in connection  with the
         sales transaction, to the MRI project, based on which the royalties had
         been computed.

         EMI and  Elron  Ltd.  notified  the  Company  that the  outcome  of the
         settlement of their  disagreement  with the OCS in connection  with the
         sale of Elron's  holdings in the Company does not impose any additional
         cost to the Company.

G.       The allocation of the proceeds in respect of the 1998 sale transaction,
         between the Company and its subsidiaries is based on an estimate of the
         assets' fair value (both tangible and  intangible)  sold by each one of
         the companies;  based on separate  negotiations  held with each selling
         Group  company;  and on the basis of the  provisions  stipulated in the
         sales agreement. A different method of allocation may cause the Company
         and its subsidiaries  additional liabilities and/or expense.  Company's
         management  believes  that the  estimates  used as the  basis  for this
         allocation of proceeds are adequate under the circumstances.

H.       Regarding  several  sales which were  performed by the Company prior to
         1998 Sale Transaction,  the Company is guarantor of customers' ultimate
         remittances to financing institutions. At December 31, 2002 the Company
         was  contingently  liable for NIS 14,988  thousand  as a result of such
         guarantees.   Additionally,  the  Company  has  agreed,  under  certain
         conditions,  including  default by customers,  to repurchase  equipment
         from third party lessors.

         At December  31, 2002 the Company was  contingently  liable under these
         agreements  to  repurchase  equipment  for  NIS  3,752  thousand.   The
         financial  statements  of the Company  include  provisions,  which,  in
         management's  opinion,  at the  date of  preparation  of the  financial
         statements,  based on its past experience, were sufficient to cover the
         costs and resources required for settling these contingencies.

I.        The Company and its  consolidated  subsidiaries  are involved in other
          claims   related  to  the   discontinuing   operation,   amounted   to
          approximately U.S.$ 2 million. The financial statements of the Company
          include  provisions,  which, in management's  opinion,  at the date of
          preparation  of the financial  statements,  based on the advice of its
          professional  counsel for this issue and on its past experience,  were
          sufficient  to cover the costs and  resources  required  for  settling
          these claims.

J.       SEVERAL  CLAIMS ARE  CURRENTLY  PENDING  AGAINST  COMPANIES  RELATED TO
         HOTELS SEGMENT, FILED BY SUBCONTRACTORS WHO PERFORMED CONSTRUCTION WORK
         FOR THEM.  THE  AGGREGATE  AMOUNT OF THESE  CLAIMS IS NOT  MATERIAL  IN
         RESPECT OF THE HOTELS SEGMENT OPERATIONS. COMPANY'S MANAGEMENT DOES NOT
         FORESEE ANY  CONSIDERABLE  EXPENSE ARISING FROM THESE CLAIMS BEYOND THE
         AMOUNTS ALREADY INCLUDED IN THE FINANCIAL STATEMENTS.



                                                                              61
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 29 - TRANSACTIONS WITH RELATED PARTIES

A.       (1)     BALANCES WITH INTERESTED AND RELATED PARTIES
<TABLE>
<CAPTION>
                                                                                                   DECEMBER 31,
                                                                                        -------------------------------
                                                                                                  2002            2001
                                                                                        --------------    -------------
                                                                                            ADJUSTED NIS (THOUSANDS)
                                                                                        -------------------------------
                 ASSETS
<S>                                                                                              <C>             <C>
                 Other receivables                                                               5,737           7,391
                 Assets related to discontinued operations                                       8,552          18,862

                 LIABILITIES
                 Accrued liabilities and deferred income                                         5,163           2,779
                 Advance from customer in respect of project in progress, net                        -           1,538
                 Liabilities related to discontinued operations                                    330             261
</TABLE>

         (2)     TRANSACTIONS WITH RELATED PARTIES

<TABLE>
<CAPTION>
                                                                                          YEAR ENDED DECEMBER 31,
                                                                               ----------------------------------------
                                                                                   2002            2001           2000
                                                                               --------      ----------       ---------
                                                                                         ADJUSTED NIS (THOUSANDS)
                                                                               ----------------------------------------

                 CONTINUED OPERATIONS:
<S>                                                                              <C>           <C>             <C>
                 Revenue from long-term contracts                                1,538         10,221          20,367
                 Management fees income                                              -            325             623
                 Finance income, net                                                 -            339           1,286
                 Benefits including salary and related costs
                   to interested parties                                         5,668          2,524           3,400
                 Participation in expenses                                       4,058          3,053           3,457
                 DISCONTINUED OPERATIONS:
                 Sales                                                               -            978          95,390
                 Cost of sales                                                       -              -             230
                 General and administration expenses                                 -          2,546           1,314
                 Finance income                                                      -          3,597               -
                 Other income                                                    1,762         (3,597)          3,687
</TABLE>

B.       COMMERCIAL AND ENTERTAINMENT CENTER

         In  September  1999 a  subsidiary  of the  Company  ("SLS")  signed  an
         agreement   with  the  Herzliya   Marina  Limited   Partnership   ("the
         Partnership"),  and  Herzliya  Marina  (Holdings)  Ltd.  ("the  Limited
         Partner") - a company in which Control Centers Ltd. holds a majority of
         the management,  as well as voting rights to acquire the commercial and
         entertainment  center  being  constructed  by  the  Partnership  at the
         Herzlyia   Marina  ("the   Commercial   Center").   Completion  of  the
         transaction  is  contingent  upon  the  transfer  of the  real  estate,
         registration  in the name of the purchaser and receipt of approval from
         the land appreciation tax authorities to carry out the transaction.  As
         of the issuance date of these  financial  statements,  the land has not
         been transferred to SLS. To secure the Partnership's  commitments under
         the above agreement,  90% of the proceeds were deposited in trust until
         satisfaction of all the obligations under this agreement.

         Pursuant to this  agreement,  SLS entered  into an  agreement  with the
         Partnership,  according to which SLS would serve as a subcontractor for
         the  Partnership  to complete  specified  site-development  works.  SLS
         undertook to provide upon  completion of the works, a bank guarantee of
         U.S.$ 0.7 million, covering the six-month period from the completion of
         the foundation  work. As of December 31, 2002, the foundation  work has
         not yet been  transferred  to the partner and the guarantee has not yet
         been provided.



                                                                              62
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 29 - TRANSACTIONS WITH RELATED PARTIES

B.       COMMERCIAL AND ENTERTAINMENT CENTER (CONT'D)

         In April 2002,  SLS (a  subsidiary  of the  Company),  entered  into an
         agreement with a company controlled by the controlling interests in the
         Company  (hereinafter  -  "CDPM"),  in  the  framework  of  which  CDPM
         committed  to  complete  the  construction  of the  commercial  center,
         including,  the  development  work, as defined in the agreement,  for a
         final and absolute  consideration of U.S. $57.7 million, which is to be
         paid based on the progress of the work ("the Work Consideration").  The
         amount  of the Work  Consideration  was  determined  on the  basis of a
         calculation  of the amount of work  remaining  to be  performed,  as at
         March 1, 2002. In respect of each payment and/or expense paid by SLS to
         a  sub-contractor,  supplier,  professional  adviser or other entity as
         part of the  implementation  of the  project  from March 1, 2002 to the
         date CDPM  commences  work,  the Work  Consideration  will be  adjusted
         accordingly.  From March 1, 2002 until  December 31, 2002 SLS made such
         payments on account of  implementation  of the project in the total sum
         of U.S. $16.8 million.  The work in the framework of the agreement does
         not include specific work, which was detailed in the agreement  (mainly
         - planning, marketing, tolls and supervision),  the cost of which is to
         be borne by SLS. In addition,  the agreement provides,  that CDPM is to
         bear the cost of adaptations  for tenants,  based on the  specification
         detailed in the agreement and the  consideration  for adaptations which
         are not included in the  specification,  is to be determined based on a
         mechanism set forth in the agreement. In the framework of the agreement
         CDPM  committed to deliver the  Commercial  Center to SLS in a state of
         being  ready  for  operation,  by  March  2003.Actually,  the  date  of
         operation of the  commercial  center had been postponed for reasons not
         related  to CDPM.  Until  the date of  publication  of these  financial
         statements the agreement had not yet been closed. Nevertheless, for the
         request of SLS, CDPM is actually assisting in construction and managing
         the project.  Upon the closing of the agreement,  SLS is to pay to CDPM
         an advance of $3  million,  on account of the Work  Consideration  and,
         concurrently, CDPM is to provide SLS with a bank guarantee, at the rate
         of 5% of the Work Consideration. In addition, SLS committed, as part of
         the agreement, to assign to CDPM all the rights and obligations,  based
         on the agreements,  which it signed with various suppliers,  except for
         those  specified in the agreement.  The agreement  includes a number of
         conditions,  the breach of which is considered as a fundamental breach,
         which confers the remedies  stated in the agreement.  The agreement was
         approved by the General Meeting of the Company's shareholders.

C.       B.H. receives,  from time to time, aviation services from Jet Link Ltd.
         (a company  controlled  by Control  Centers) in exchange  for a payment
         based on the latter's price list, net of a discount of 5%.

D.       The Company leases office space from Control Centers at market prices.

E.       Commitments (see Note 20.A).

F.       Liens and collaterals (see Note 20.B).

G.       As for shares  allotted to  interested  parties and loans  provided for
         their purchase (see Note 17.B).

H.       The Group  companies  carry  out  credit,  deposit  and  management  of
         security  portfolio  transactions  with bank, which interested party in
         the  Company.  Since  these  transactions  are  carried  out during the
         ordinary  course of  business  and  under  customary  market  terms and
         conditions,  no  segregation  has been made in respect  thereof  and no
         disclosure has been provided in the financial statements.


                                                                              63
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 30 - FINANCIAL INSTRUMENTS

A.       FAIR VALUE OF FINANCIAL INSTRUMENTS

         The Company's  financial  instruments include monetary assets (cash and
         cash  equivalents,   short  and  long-term  deposits,   trade  accounts
         receivables,  marketable  securities as well as other  receivables  and
         current  assets)  and  monetary  liabilities   (short-term  borrowings,
         long-term liabilities,  trade accounts payables as well as payables and
         other  current  liabilities).  Due  to  the  nature  of  the  financial
         instruments included in working capital,  their fair values approximate
         those presented in the balance sheet.

         While it is  difficult  to  estimate  the fair  value of many  accounts
         receivable  bearing different  maturity dates and interest rates in the
         different   countries  in  which  the  Group   companies   are  active.
         Nevertheless,  the Group companies'  management estimates that the fair
         value of these accounts is not lower than their book value.

         The fair value of trade  accounts  receivable,  deposits and  long-term
         liabilities is ordinarily based on the present value of future receipts
         and  disbursements,  discounted by the interest rate  applicable to the
         Company's lending or borrowing activities under similar terms as of the
         balance  sheet date,  and it is not less than the one  presented in the
         financial statements.

         As  for  the  presentation  of  long-term  balances  not  under  market
         conditions (see Note 2.K).

         Derivative  financial  instruments  having an active market were valued
         based on market value.

B.       Assets  included in investment  and loans that their fair value differs
         from the value presented in the balance sheet are as follows:

<TABLE>
<CAPTION>
                                                                                                     DECEMBER 31, 2002
                                                                                                 ------------------------
                                                                                                 ADJUSTED NIS (THOUSANDS)
                                                                                                 ------------------------
                                                                                                   CARRYING
                                                                                                    AMOUNT       FAIR VALUE
                                                                                                 -------------   ----------

<S>                                                                                                  <C>            <C>
         Permanent investments in parent company marketable securities                               41,064         18,868
</TABLE>

C.       CONCENTRATION OF CREDIT RISKS

         Cash and  amounts on deposit  in Israel  and  abroad are  deposited  in
         banks.

         Investments  in  marketable  securities  (see Note 4),  are  exposed to
         market-price fluctuation.  Such changes may have an impact on the value
         of these investments upon realization.

         Due to their nature,  the Group companies are not materially exposed to
         credit risks stemming from  dependence on a given  customer.  The Group
         companies examine on an ongoing basis the volume of the credit extended
         to their  customers and,  accordingly,  record a provision for doubtful
         accounts  based on those  factors  affecting  credit  risks of  certain
         customers  in the  opinion  of  these  companies'  management  and  the
         business consultants engaged for that purpose.

         As  security  for  contingent  liabilities  of the  Company  arising in
         connection with loans received by former  customers from foreign banks,
         the Company  provided  bank  guarantees  totaling NIS 21.5 million (see
         Note 20.B.3).

         INTEREST RATE RISKS
         As for interest rates - see Notes 3, 4, 7, 12, 15.

         EXCHANGE RATE RISKS
         As for exchange rates - see Notes 3, 4, 7, 12, 15.



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<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 31 - DISCONTINUING OPERATION DISCLOSURE

A.       In November  1998 the Company and its  consolidated  subsidiaries  sold
         part  of  the  net  assets,   intangible   assets,   R&D,  service  and
         distribution  deployment  and part of the  manufacturing  operations in
         Israel and abroad in  connection  with the NM and MRI to GEMS and CT to
         Philips ("the Sale transaction").

         The Company  continued to operate in the  sub-assemblies  and component
         segment until December 2002 by manufacturing,  assembling,  engineering
         and  integrating of assemblies and  sub-assemblies  mainly for GEMS and
         Philips  (mainly for  medical  imaging  equipment)  through its Ma'alot
         facility in northern Israel ("the Plant").

         On December  31, 2002 the  Company  sold (on the basis of an  agreement
         signed on November  13,  2002) the plant and all of the  operations  in
         this  segment  to a third  party  ("the  Purchaser").  Pursuant  to the
         agreement the Company sold the Plant's assets  (tangible and intangible
         assets), as defined in the agreement net of certain liabilities assumed
         by  the  purchaser   (agreed  balance  sheet  and   off-balance   sheet
         liabilities).

         The Purchaser will not assume  liabilities for claims and disputes that
         arise out of facts and  circumstances  which occurred or arose prior to
         the  closing  date of the  transaction  as  defined  in the  agreement.
         Regarding  indemnity that the Purchaser received from the Company - see
         note 20.A.

         The book value as of December 31, 2002 of the asset  transferred net of
         liabilities  assumed  by  the  purchaser  was  approximately  U.S.$  12
         million.  The capital gain recorded from this  transaction  amounted to
         approximately U.S.$ 8 million.

         In order to secure possible  adjustments to the consideration (if any),
         an  amount  equal to 15% of the book  value of the  transferred  assets
         (gross), and an amount equal to the balance of the customers' debts for
         which  confirmation  of the  balance  of those  debts  had not yet been
         received was deposited into escrow for a period of up to 90 days. As of
         the date of approval of the financial  statements the balance deposited
         in escrow in favor of the Company, was U.S.$ 3.2 million.




                                                                              65
<PAGE>

                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 31 - DISCONTINUING OPERATION DISCLOSURE (CONT'D)

B.       BALANCE SHEET ITEMS:

<TABLE>
<CAPTION>
                                                                                                                 CONVENIENCE
                                                                                                                 TRANSLATION
                                                                                                                 (NOTE 2B)
                                                                             YEAR ENDED         YEAR ENDED        YEAR ENDED
                                                                            DECEMBER 31,      DECEMBER 31,      DECEMBER 31,
                                                                            ------------      ------------      ------------
                                                                                2002               2001             2002
                                                                            ------------      ------------      ------------
                                                                               ADJUSTED NIS (THOUSANDS)       U.S.$ (THOUSANDS)
                                                                            ------------------------------    -----------------

      ASSETS:

<S>                                                                                <C>             <C>         <C>
      Accounts and notes receivable - trade                                        2,548           89,584               538
      Other accounts receivable and prepaid expenses                             102,222           18,533            21,579
      Inventories                                                                      -           57,361                 -
                                                                            ------------      ------------    -----------------

                                                                                 104,770          165,478            22,117
                                                                            ------------      ------------    -----------------

      Long-term receivables                                                        9,364           11,681             1,977
                                                                            ------------      ------------    -----------------

      Fixed assets, net                                                                -           13,362                 -
                                                                            ------------      ------------    -----------------

      TOTAL ASSETS                                                               114,134          190,521            24,094
                                                                            ============      ============    =================

      CURRENT LIABILITIES:

      Accounts payable - trade                                                         -           95,714                 -
      Accrued liabilities                                                        110,230          158,035            23,270
                                                                            ------------      ------------    -----------------

                                                                                 110,230          253,749            23,270
                                                                            ------------      ------------    -----------------

      LONG-TERM LIABILITIES:

      Long-term debts                                                                323              781                68
      Liability for employee severance benefits, net                                   -              908                 -
                                                                            ------------      ------------    -----------------

                                                                                     323            1,689                68
                                                                            ------------      ------------    -----------------

      TOTAL LIABILITIES                                                          110,553          255,438            23,338
                                                                            ============      ============    =================

</TABLE>




                                                                              66
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                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 31 - DISCONTINUING OPERATION DISCLOSURE (CONT'D)

C.       STATEMENTS OF OPERATIONS:

<TABLE>
<CAPTION>
                                                                                                                 CONVENIENCE
                                                                                                                 TRANSLATION
                                                                                                                  (NOTE 2B)
                                                              YEAR ENDED       YEAR ENDED       YEAR ENDED       YEAR ENDED
                                                             DECEMBER 31,    DECEMBER 31,     DECEMBER 31,       DECEMBER 31,
                                                             ------------    ------------     ------------    -----------------
                                                                 2002             2001            2000               2002
                                                             ------------    ------------     ------------    -----------------
                                                                        ADJUSTED NIS (THOUSANDS)              U.S.$ (THOUSANDS)
                                                             ---------------------------------------------    -----------------

<S>                                                               <C>             <C>             <C>                   <C>
    Sales                                                         430,165         400,923         388,853               90,810
    Cost of sales                                                 377,259         367,107         363,268               79,641
                                                             ------------    ------------     ------------    -----------------

    GROSS PROFIT                                                   52,906          33,816          25,585               11,169
    Sales and marketing expenses                                    1,096             980           1,357                  231
    General and administration expenses                             8,745          12,399          12,173                1,846
                                                             ------------    ------------     ------------    -----------------

    OPERATING INCOME                                               43,065          20,437          12,055                9,092

    Finance (expenses) income, net                                 (5,733)            (15)          1,864               (1,210)
    Other income, net                                              15,498          14,165          52,778                3,271
    Gain from sale of business                                     37,863               -               -                7,993
                                                             ------------    ------------     ------------    -----------------

    INCOME BEFORE INCOME TAXES                                     90,693          34,587          66,697               19,146
    Income taxes                                                        -               -          (4,142)                   -
                                                             ------------    ------------     ------------    -----------------

    INCOME AFTER INCOME TAXES                                      90,693          34,587          70,839               19,146

    The company's share in loss of affiliated company                   -               -           7,101                    -
                                                             ------------    ------------     ------------    -----------------

    NET INCOME RELATED TO DISCONTINUING OPERATION                  90,693          34,587          77,940               19,146
                                                             ============    =============    ============    =================

</TABLE>



NOTE 32 - SUBSEQUENT EVENTS

Subsequent to  the balance sheet date, the Company signed a lease agreement with
an external hotel company. See Note 19.C.(ii).

                                                                              67
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                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 33 -     MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR
              EFFECT ON THE FINANCIAL STATEMENTS

A.       The  consolidated  financial  statements of the Company are prepared in
         accordance  with  accounting  principles  generally  accepted in Israel
         ("Israeli GAAP"), which differ in certain respects from those generally
         accepted in the United States ("U.S. GAAP"), as follows:

         1.   EFFECT OF INFLATION

              IN ACCORDANCE WITH ISRAELI GAAP:

              The consolidated financial statements of the Company are presented
              in  adjusted  New  Israeli   Shekels  (NIS).   For  the  basis  of
              presentation  and principles of the adjustment - see Note 2.A. For
              the new Israeli  accounting  standard  (standard No. 12) regarding
              discontinuance  of adjustment  of Financial  Statements - see Note
              2.X.1.

              IN ACCORDANCE WITH U.S. GAAP:

              The financial statements should be expressed in nominal historical
              terms.

              The effect of this difference between  measurement on the adjusted
              basis and on the basis of historical  terms, is not required to be
              included  in  the   reconciliation  to  the  U.S.  GAAP  financial
              statements.

         2.   JOINTLY CONTROLLED COMPANIES

              IN ACCORDANCE WITH ISRAELI GAAP:

              In  accordance  with the  provisions  set forth in Opinion No. 57,
              issued  by the  Israeli  Certified  Public  Accountants  Institute
              ("ICPAI"),  jointly  controlled  companies  are  included,  in the
              consolidated   financial   statements,   in  accordance  with  the
              "proportionate consolidation method".

              IN ACCORDANCE WITH U.S. GAAP:

              Investments in jointly  controlled  companies are accounted for by
              the "equity method".

              Use of proportionate consolidation does not have any effect on the
              net profit/loss  and/or the shareholders'  equity.  Differences in
              classifications  or display of items in the balance sheet,  in the
              statement of  operation  and in the  statement of cash flow,  that
              result from using proportionate consolidation,  is not required to
              be  included  in the  reconciliation  to the U.S.  GAAP  financial
              statements.   However,   summarized   data   regarding   reporting
              differences between the proportionate consolidation method and the
              equity method, are given in subsection B.4. below.

         3.   DEFERRED TAXES

              a)   DEFERRED TAXES IN RESPECT OF INFLATION ADJUSTMENTS

                   IN ACCORDANCE WITH ISRAELI GAAP:

                   Deferred  taxes in respect of inflation  adjustments to fixed
                   assets are provided only to the extent that such fixed assets
                   are amortized within 20 years.

                   IN ACCORDANCE WITH U.S. GAAP:

                   Deferred   taxes   are   provided   on  all  such   inflation
                   adjustments,   to  the   extent   that  they  are   temporary
                   differences, regardless of when they will be amortized.



                                                                              68
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 33 -    MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR
             EFFECT ON THE FINANCIAL STATEMENTS (CONT'D)

A.       MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP (CONT'D)

         3.   DEFERRED TAXES (CONT'D)

              b)     EARNINGS FROM "APPROVED ENTERPRISES"

                     Under  the  Israeli  Law  for   Encouragement   of  Capital
                     Investments,  1959,  a  company  which  owns  an  "approved
                     enterprise",  and which chooses the "alternative  benefits"
                     track,  is  exempted  from  income  tax  on   undistributed
                     earnings  which  derive  from the  enterprise,  during  the
                     period of benefits ("tax exempt earnings").

                     In the event  that a  dividend  is  distributed  out of tax
                     exempt  earnings,  the company  will be subject to tax at a
                     rate of 25% on the amount distributed, and the shareholders
                     will, in addition thereto,  be liable to tax at the rate of
                     15%. However, if the shareholder is a company, then, in the
                     event  that  such   shareholder   is  desirous  to  further
                     distribute its received  dividends to its own shareholders,
                     then such shareholder will be entitled to a 15% tax credit.

                     IN ACCORDANCE WITH ISRAELI GAAP:

                     Deferred  tax  should  not be  provided  in respect to such
                     undistributed  tax-exempt earnings, if the Company's policy
                     is not to initiate such a dividend distribution.

                     IN ACCORDANCE WITH U.S. GAAP:

                     Under SFAS 109, a deferred tax liability  normally would be
                     recorded  relating  to  taxes  that  would  be  owed on the
                     distribution  of profits even if management does not intend
                     currently to declare dividends.  However, under Israeli tax
                     law, a company could be liquidated and profits  distributed
                     with  no  tax  liability  to  the  company;   rather,   the
                     shareholders would incur the tax liability.  If the Company
                     can represent that profits could be distributed tax free in
                     a   liquidation,   and  the   undistributed   earnings  are
                     essentially permanent in duration, a deferred tax liability
                     does not need to be recorded.

              c)     DEFERRED TAXES IN RESPECT OF  ACQUISITION  OF A  SUBSIDIARY
                     COMPANY

                     IN ACCORDANCE WITH ISRAELI GAAP:

                     Deferred  taxes are  recorded for  differences  between the
                     fair values and the book value of  identifiable  assets and
                     liabilities  of  subsidiaries   upon   acquisition  of  the
                     investment   therein,   except   for   assets   for   which
                     amortization  is not allowable for tax purposes (e.g.  land
                     and the like).

                     IN ACCORDANCE WITH U.S. GAAP:

                     Deferred taxes are recorded for the  differences  mentioned
                     in the  preceding  paragraph,  including  assets  for which
                     amortization is not allowable for tax purposes.



                                                                              69
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 33 -    MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR
             EFFECT ON THE FINANCIAL STATEMENTS (CONT'D)

A.       MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP (CONT'D)

         4.   COMPENSATION COMPONENT OF OPTIONS PLAN AND SHARES INCENTIVE PLAN

              IN ACCORDANCE WITH ISRAELI GAAP:

              The overall "benefit component",  in respect of options granted to
              employees  (or shares  issued to employees  for  consideration  of
              non-recourse  loans, that are treated as options),  is not charged
              as an expense in the statement of operations.

              IN ACCORDANCE WITH U.S. GAAP:

              Under U.S. GAAP (APB-25)  (for fixed options  plan),  the "benefit
              component" is measured as the difference  between the share market
              price and the  exercise  price of the option (or the  non-recourse
              loan), at the "measurement date". The benefit component is charged
              as a salary  expense  during  the  period  in which  the  employee
              performs the services for which the benefit was granted. Since the
              exercise  price of the  options  granted  by the  Company  (or the
              non-recourse loan) is essentially equal to the market value of the
              shares to be issued upon  exercising  the options,  at the date of
              granting,  therefore,  no  salary  expenses  were  charged  to the
              statements of operations.

              For information  regarding the effect of pro forma data, according
              to SFAS No. 123, see subsection B.5.a. below.

       5.     MARKETABLE SECURITIES

              IN ACCORDANCE WITH ISRAELI GAAP:

              Israeli GAAP divides marketable securities into two categories:

              Marketable  securities,  which constitute a "current  investment",
              are  stated at market  value  Unrealized  gains  and  losses  from
              marketable securities which are "current investments" are included
              in the  statement  of  operations.  Marketable  securities,  which
              constitute  a "permanent  investment",  are stated at cost (and in
              respect to debentures - including accumulated interest and effects
              of foreign currency exchanges), except where their market value is
              lower, and the decline in value is not considered to be temporary.

              Changes in value are charged to statement of operations.  See also
              Note 2.D.

              IN ACCORDANCE WITH U.S. GAAP:

              SFAS No. 115 divides marketable securities into three categories:

              (1)   Marketable securities that are acquired and held principally
                    for the purpose of selling them within the near future,  are
                    classified  as "trading  securities"  are  reported at their
                    fair value.  Unrealized gains and losses are included in the
                    statement of operations.

              (2)   Debt securities that the company has the positive intent and
                    ability to hold to maturity are  classified  as "held - to -
                    maturity" securities and are reported at amortized cost.

              (3)   Marketable  securities not classified as either "held - to -
                    maturity"  securities or "trading securities" are classified
                    as "available - for - sale" securities and reported at their
                    fair value.  Unrealized  gains and losses are  included in a
                    separate item within the shareholders  equity,  and reported
                    as other comprehensive income.



                                                                              70
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 33 -    MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR
             EFFECT ON THE FINANCIAL STATEMENTS (CONT'D)

A.       MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP (CONT'D)

         6.   INVESTMENT IN PARENT COMPANY'S SHARES

              IN ACCORDANCE WITH ISRAELI GAAP:

              Shares  which held for a long term  ("permanent  investment")  are
              presented, as an asset, at their cost.

              IN ACCORDANCE WITH U.S. GAAP:

              "Investments  by a subsidiary in the shares of its parent  company
              are treated as 'treasury  shares' on the books of the  subsidiary.
              Accordingly,  such investments are carried at cost and reported as
              a deduction in the capital stock section of the Balance Sheet."

       7.     ISSUANCE OF SHARES BY INVESTEE IN A DEVELOPMENT STAGE TO THIRD
              PARTY

              IN ACCORDANCE WITH ISRAELI GAAP:

              The increase in the Company's  share of an  investee's  net assets
              value as a result of an  issuance  of shares by the  investee,  is
              recorded as deferred income,  which is charged to the statement of
              operations  over a three year period or up to the Company's  share
              in  investee's  losses  during the relevant  period,  whichever is
              higher, on an accumulated basis.

              IN ACCORDANCE WITH U.S. GAAP:

              The  increase in the  Company's  share in the  investee net assets
              value,   is  charged   directly  as  a  capital   reserve   within
              shareholders' equity.

       8.     FOREIGN CURRENCY TRANSLATION

              a)    CONDITIONS  NECESSARY  TO BE  CONSIDERED  AS AN  "AUTONOMOUS
                    FOREIGN ENTITY"

                    IN ACCORDANCE WITH ISRAELI GAAP:

                    According to  Interpretation  No. 8 to Opinion No. 36 issued
                    by the ICPAI, the  determination of the functional  currency
                    of an entity is based on several conditions. An entity which
                    meets  all  conditions,  is  considered  as  an  "autonomous
                    foreign  entity" and in that case, the  differences  arising
                    from the  translation,  are included in capital  reserve and
                    not in the profit and loss  accounts.  An entity  which does
                    not meet all  conditions is considered to be an  "integrated
                    entity" which translation  differences should be recorded in
                    the statement of operations.

                    See also Note 2.X.1.

                    IN ACCORDANCE WITH U.S. GAAP:

                    In  accordance  with SFAS No. 52, the  determination  of the
                    functional  currency  of  an  entity  is  based  on  several
                    conditions,  not all of which a company has to meet in order
                    to be considered as an "autonomous foreign entity".  When an
                    entity meets most of the  conditions,  it will be considered
                    as an "autonomous foreign entity".

                    Until  September 30, 1999 one  subsidiary  was defined as an
                    "autonomous  foreign  entity"  by the  U.S.  GAAP  and as an
                    "integrated  entity" by the Israeli  GAAP.  Since October 1,
                    1999 such subsidiary is defined as an "integrated entity" by
                    both the Israeli and the U.S. GAAP.



                                                                              71
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 33 -    MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR
             EFFECT ON THE FINANCIAL STATEMENTS (CONT'D)

A.       MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP (CONT'D)

         8.   FOREIGN CURRENCY TRANSLATION (CONT'D)

              b)    TRANSLATION OF PROFIT AND LOSS ITEMS

                    IN ACCORDANCE WITH ISRAELI GAAP:

                    The financial  statements of an "autonomous  foreign entity"
                    (after adjustment to the Consumer Price Index in the country
                    of its respective residence), are being translated into NIS,
                    at the exchange rate as of the balance sheet date  ("closing
                    rate method").

                    IN ACCORDANCE WITH U.S. GAAP:

                    In accordance with SFAS No. 52, the profit and loss accounts
                    of an  "autonomous  foreign  entity," are  translated at the
                    actual transaction rates or the average rate for the period.

       9.     PRE-OPENING HOTEL EXPENSES

              IN ACCORDANCE WITH ISRAELI GAAP:

              Pre-opening  expenses  of a hotel  (mainly  -  employee  training,
              testing of hotel systems and preparation of the hotel for opening)
              are stated at cost and are amortized over a three-year period from
              commencement of full scale operations.

              IN ACCORDANCE WITH U.S. GAAP:

              In  accordance  with  the  statement  of  Position  ("SOP")  98-5.
              "Reporting   on   the   costs   of   start-up   activities",   all
              non-governmental  entities  expense  costs of start-up  activities
              (pre-opening,   pre-operating  and   organizational   costs),  are
              expensed as incurred.

       10.    VENTURE CAPITAL INVESTMENTS

              IN ACCORDANCE WITH ISRAELI GAAP:

              Venture capital fund's investments in venture capital investments,
              are  presented  according  to their cost less a  provision  for an
              impairment, if necessary.

              IN ACCORDANCE WITH U.S. GAAP:

              Venture capital fund's investments are presented at fair value.

       11.    CAPITALIZATION OF FINANCE COSTS

              IN ACCORDANCE WITH ISRAELI GAAP:

              According  to  Statement  No. 3, issued by the Israeli  Accounting
              Standards  Board  ("IASB"),  the  amount  of  finance  costs to be
              capitalized  for qualifying  assets is intended to be that portion
              of the  finance  cost  in  real  terms,  including  exchange  rate
              differences, incurred during the assets' construction period.

              IN ACCORDANCE WITH U.S. GAAP:

              Finance costs which are eligible for capitalization for qualifying
              assets include only the interest costs, and don't include exchange
              rate differences.



                                                                              72
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 33 -     MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR
              EFFECT ON THE FINANCIAL STATEMENTS (CONT'D)

A.       MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP (CONT'D)

         12.  IMPLEMENTATION OF THE EQUITY METHOD

              In circumstances  where the company's  ownership in an investee is
              in the form of preferred  securities  or other senior  securities,
              the Company recognizes equity method losses based on the ownership
              level of the particular  investee  securities or loans held by the
              Company to which the equity method losses are being applied.

              Investment previously accounted for on the cost basis which become
              qualified  for use of the equity  method,  by an  increase  in the
              level of ownership as a result of acquisition of additional voting
              stock of the investee by the company or by changing the investee's
              status because of no longer meeting the applicable Venture Capital
              Investment Fund conditions, is treated as follows:

              IN ACCORDANCE WITH ISRAELI GAAP:

              a.    The  company  (the  Investor)  should  implement  the equity
                    method only from the date the  investment  become  qualified
                    for use the  equity  method  (i.e.  from the date the change
                    occurred) and  thereafter.  Restatement  of previous  years'
                    data,  presented  within the  financial  statements,  is not
                    required or permitted.

              b.    Goodwill  is  amortized  periodically  over  its  respective
                    estimated  useful  life,  and  is  reviewed  currently,  for
                    impairment.

              c.    A provision for a decline in the fair value of an investment
                    in an  autonomous  foreign  company,  included on the equity
                    basis, is charged directly against any credit balance in the
                    capital  reserve  for  translation   adjustments  previously
                    recorded,  in  respect  of  this  investment  and up to that
                    amount.  The amount of the  required  provision in excess of
                    the capital reserve for translation adjustments,  is charges
                    to operation.

              IN ACCORDANCE WITH U.S. GAAP:

              a.    The  investment,  results of  operations  (current and prior
                    periods  presented)  and  retained  earnings of the company,
                    should be adjusted, retroactively, by applying accounting of
                    a step-by-step acquisition of the investee's stock.

              b.    Goodwill  determined  to  have  an  indefinite  useful  life
                    acquired in a purchase business combination  completed after
                    June 30, 2001, (but before January 1, 2002) is not amortized
                    but is  tested  for  impairment  together  with  the  entire
                    investment,  as  a  whole.  Goodwill  acquired  in  business
                    combinations  completed  before July 1, 2001 continued to be
                    amortized and tested for  impairment  until January 1, 2002.
                    After  that date the  goodwill  is no longer  amortized  but
                    rather tested, at least annually, for impairment.

                    Goodwill  related to equity  method  investees was amortized
                    until  January 1, 2002,  from that day on the  remainder  of
                    goodwill  was  ceased to be  amortized  but was steel  being
                    tested for impairment under the provisions of APB18.

              c.    Capital  reserves for  translation  adjustments are realized
                    only upon sale or upon  complete or  substantially  complete
                    liquidation   of  an   investment   in  a  foreign   entity.
                    Realization of such capital reserve as a result of recording
                    a provision for a decline in fair value, is prohibited.

       13.    TRANSACTIONS  BETWEEN COMPANIES UNDER COMMON CONTROL - PROVISION
              FOR IMPAIRMENT LOSS

              The Company recorded fixed asset that was acquired,  in 1999, from
              a controlling  party,  at its carrying  amount in the  controlling
              party's  financial  statements  at the date of  acquisition.  This
              carrying amount reflects a provision for a possible decline in its
              value,  that was recorded,  in anticipation of the transaction and
              based on the transaction's  price, in the financial  statements of
              the  controlling  party,  that were  prepared in  accordance  with
              Israeli GAAP.



                                                                              73
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 33 -     MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR
              EFFECT ON THE FINANCIAL STATEMENTS (CONT'D)

A.       MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP (CONT'D)

       13.    TRANSACTIONS  BETWEEN COMPANIES UNDER COMMON CONTROL - PROVISION
              FOR IMPAIRMENT LOSS (CONT'D)

              IN ACCORDANCE WITH U.S. GAAP:

              According to SFAS 121, since  estimate  future cash flows expected
              to result  from the use of this  fixed  asset  (acquired  from the
              controlling  party),  within  the  Group,  were not less  than the
              asset's  carrying  amount,   an  impairment  loss  should  not  be
              recognized, in accordance with U.S. GAAP. Therefore, the provision
              was reversed.

       14.    IMPAIRMENT OF INVESTMENTS

              IN ACCORDANCE WITH ISRAELI GAAP:

              According  to the  provisions  of Opinion 68 of the  Institute  of
              Certified Public Accountants in Israel ("Opinion 68"), if there is
              a decline  in the fair  value  (not of a  temporary  nature) of an
              investment  in an investee  company  (including  subsidiaries),  a
              provision  for the decline in value is  provided.  If the investee
              company is a foreign  autonomous entity the provision  provided is
              charged directly against any credit balance of cumulative  foreign
              currency translation adjustment, previously recorded in respect of
              this  investment . The excess of the required  provision  over the
              balance of the cumulative foreign currency translation  adjustment
              is charged to the statement of operations. The provision provided,
              is  attributed,  in the  consolidated  financial  statement of the
              Company, to the subsidiary's assets value.

              IN ACCORDANCE WITH U.S. GAAP:

              The  provision  set forth in APB 18, in respect of  provision  for
              decline in  investment's  value refer to investments in affiliates
              only (not to subsidiaries).


       15.    CAPITALIZATION OF LEASE PAYMENTS

              IN ACCORDANCE WITH ISRAELI GAAP:
              Lease payments  occurred in the  pre-operation  period,  have been
              capitalization to the cost of the assets.

              IN ACCORDANCE WITH U.S. GAAP:
              Lease payments made during a construction or other  under-utilized
              period in a lease term are not  capitalized as part of the cost of
              the asset.

       16.    SALE OF PLANT GAIN RECOGNITION

              As for the description of the sale of plant - see note 31A

              IN ACCORDANCE WITH THE ISRAELI GAAP:
              A gain from a sale  transaction is recognized only after providing
              an  acceptable  level of assurance of the  existence and amount of
              the gain. Gain generation process is deemed to be culminated when:
              (i) realized  (assets are  exchanged for cash or claim to cash) or
              realizable (ii) the seller has substantially  accomplished what it
              must do in order to be entitled to the benefits represented by the
              gain. Gain from business' sale transactions  should be recognized,
              generally,  when the following conditions have been satisfied: (i)
              the seller has transferred to the buyer the significant  risks and
              rewards of ownership;  (ii) the seller retains neither  continuing
              managerial  involvement  to the  degree  usually  associated  with
              ownership nor  effective  control over the  assets/business  sold;
              (iii) any major uncertainties as to ultimate realization of profit
              have  been  removed  and the  amount  of the gain can be  measured
              reliably;  and  (iv) it is  probable  that the  economic  benefits
              associated  with the  transaction  will flow to the seller and the
              collection  of the sale price is reasonably  assured.  In light of
              the above  mentioned , the gain was  recognized  in the  Company's
              2002 financial statements.

              IN ACCORDANCE WITH U.S. GAAP:
              Gain from such sale of business  should not be  recognized  unless
              all  consideration  was in the hand of the  seller at the  balance
              sheet  date.  Since  in the  Ma'alot  transaction,  a  significant
              portion  of the cash  consideration  was,  according  to the buyer
              request,  deposited  in escrow,  for future  release,  in order to
              secure  the  potential  purchase  price  adjustments,  that may be
              required (if any), the gain on the sale will be recognized, for US
              GAAP purposes, in the Company's 2003 financial statements.


                                                                              74
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 33 -     MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR
              EFFECT ON THE FINANCIAL STATEMENTS (CONT'D)

A.       MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP (CONT'D)

       17.    EARNINGS PER SHARE

              IN ACCORDANCE WITH ISRAELI GAAP:

              a)     Share   options  and  shares   issued  to   employees   for
                     consideration  of  non-recourse  loans (that are treated as
                     options) are included in the  computation of basic earnings
                     per  share  only if  their  exercise  is  considered  to be
                     probable.  Calculation  of the  probability is based on the
                     ratio  between  the  market  price  of the  shares  and the
                     present value of the exercising  price of the stock options
                     into shares or the present value of the repayment amount of
                     the loans  granted  for the  purchase  of such  shares,  as
                     applicable.

              b)     Share  options  exercised  during  a  reported  period  are
                     considered  as exercised as at the latest of the  beginning
                     of such period or the option issuing date.

              c)     Share  options   (including  shares  for  consideration  of
                     non-recourse  loans),  whose exercise is not probable,  are
                     nevertheless  considered as  exercised,  for the purpose of
                     calculating  the diluted  earnings per share,  and same, in
                     addition  to the  outstanding  shares,  whereas  the  basic
                     earnings are adjusted for "notional interest" resulting out
                     of such option exercise.

              IN ACCORDANCE WITH U.S. GAAP:

              a)     In accordance  with SFAS No. 128,  Basic earnings per share
                     are computed on the basis of the weighted average number of
                     shares  outstanding  during the year, only,  without taking
                     into consideration any convertible securities.

              b)     Share  options  exercised  during  a  reported  period  are
                     considered as exercised as at the date of their  respective
                     exercise.

              c)     Diluted  earnings per share is computed on the basis of the
                     weighted  average number of shares  outstanding  during the
                     year,  plus  the  dilution  potential  of  the  outstanding
                     options  exercisable into shares during the year (including
                     shares issued for  consideration  of  non-recourse  loans).
                     Income  (loss) from  continuing  operations  is used as the
                     "control number" for determining  whether  potential common
                     shares are dilutive of anti-dilutive.  The number of shares
                     is adjusted by the "notional repurchase" of treasury shares
                     using  the   consideration   of  the  options   potentially
                     exercised or the  potential  repayment  amount of the loans
                     granted for the purchase of such shares, as applicable).

         18.  RECENTLY ISSUED ACCOUNTING STANDARDS

              In June 2001,  FASB  issued  SFAS No.  143,  Accounting  for Asset
              Retirement  Obligations.  SFAS No.  143  requires  the  Company to
              record  the  fair  value of an asset  retirement  obligation  as a
              liability  in the  period  in which it  incurs a legal  obligation
              associated with the retirement of tangible  long-lived assets that
              result from the  acquisition,  construction,  development,  and/or
              normal use of the assets. The Company also records a corresponding
              asset that is depreciated  over the life of the asset.  Subsequent
              to the initial measurement of the asset retirement obligation, the
              obligation  will be  adjusted at the end of each period to reflect
              the passage of time and changes in the estimated future cash flows
              underlying the  obligation.  The Company is required to adopt SFAS
              No. 143 on January 1, 2003.  The  adoption  of SFAS No. 143 is not
              expected  to have a  material  effect on the  Company's  financial
              statements.

              In June 2002,  the FASB issued SFAS No. 146,  Accounting for Costs
              Associated  with  Exit  or  Disposal  Activities.   SFAS  No.  146
              addresses financial  accounting and reporting for costs associated
              with exit or disposal  activities  and nullifies  Emerging  Issues
              Task Force (EITF) Issue 94-3,  Liability  Recognition  for Certain
              Employee Termination Benefits and Other Costs to Exit an Activity.
              The  provisions  of  this  Statement  are  effective  for  exit or
              disposal  activities  that are initiated  after December 31, 2002,
              with early application encouraged.

                                                                              75
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 33 -     MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR
              EFFECT ON THE FINANCIAL STATEMENTS (CONT'D)

A.       MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP (CONT'D)

         18.  RECENTLY ISSUED ACCOUNTING STANDARDS (CONT'D)

              The  adoption  of SFAS No. 146 is not  expected to have a material
              effect on the Company's financial statements.

              In  November  2002,  the  FASB  issued   Interpretation   No.  45,
              Guarantor's Accounting and Disclosure Requirements for Guarantees,
              Including  Indirect  Guarantees  of  Indebtedness  to  Others,  an
              interpretation  of  FASB  Statements  No.  5,  57  and  107  and a
              rescission  of FASB  Interpretation  No. 34.  This  Interpretation
              elaborates  on the  disclosures  to be made by a guarantor  in its
              interim  and annual  financial  statements  about its  obligations
              under guarantees issued. The Interpretation  also clarifies that a
              guarantor is required to recognize, at inception of a guarantee, a
              liability  for the fair value of the  obligation  undertaken.  The
              initial   recognition   and   measurement    provisions   of   the
              Interpretation  are  applicable to  guarantees  issued or modified
              after  December  31, 2002 and are not  expected to have a material
              effect  on the  Company's  financial  statements.  The  disclosure
              requirements are effective for financial  statements of interim or
              annual periods ending after December 15, 2002. See Note 20 for the
              required disclosures.

              In December  2002,  the FASB issued SFAS No. 148,  Accounting  for
              Stock-Based Compensation - Transition and Disclosure, an amendment
              of FASB  Statement No. 123. This  Statement  amends FASB Statement
              No.  123,  Accounting  for  Stock-Based  Compensation,  to provide
              alternative  methods of transition  for a voluntary  change to the
              fair  value  method  of  accounting   for   stock-based   employee
              compensation.  In addition,  this Statement  amends the disclosure
              requirements of Statement No. 123 to require prominent disclosures
              in both annual and interim  financial  statements.  Certain of the
              disclosure  modifications  are  required  for fiscal  years ending
              after  December  15,  2002 and are  included in the notes to these
              consolidated financial statements.

              In  January  2003,   the  FASB  issued   Interpretation   No.  46,
              Consolidation of Variable Interest Entities,  an interpretation of
              ARB No. 51. This  Interpretation  addresses the  consolidation  by
              business  enterprises of variable  interest entities as defined in
              the  Interpretation.  The  Interpretation  applies  immediately to
              variable  interests in variable  interest  entities  created after
              January 31, 2003, and to variable  interests in variable  interest
              entities  obtained after January 31, 2003. The application of this
              Interpretation  is not  expected to have a material  effect on the
              Company's  financial  statements.   The  Interpretation   requires
              certain  disclosures in financial  statements issued after January
              31,  2003 if it is  reasonably  possible  that  the  Company  will
              consolidate  or  disclose   information  about  variable  interest
              entities when the Interpretation becomes effective.

              In November 2002, the Emerging  Task-Force issued its consensus on
              EITF 00-21,  "Revenue  Arrangements  with  Multiple  Deliverables"
              ("EITF  00-21")  on an  approach  to  determine  whether an entity
              should  divide an  arrangement  with  multiple  deliverables  into
              separate  units  of  accounting.  According  to  the  EITF  in  an
              arrangement  with multiple  deliverables,  the  delivered  item(s)
              should be  considered a separate  unit of accounting if all of the
              following criteria are met: (1) The delivered item(s) has value to
              the customer on a  standalone  basis,  (2) There is objective  and
              reliable  evidence of the fair value of the  undelivered  item(s),
              (3) If  the  arrangement  includes  a  general  right  of  return,
              delivery or performance of the  undelivered  item(s) is considered
              probable and  substantially  in the control of the vendor.  If all
              the  conditions  above are met and there is objective and reliable
              evidence  of  fair  value  for  all  units  of  accounting  in  an
              arrangement,  the arrangement consideration should be allocated to
              the separate  units of  accounting  based on their  relative  fair
              values.  However,  there may be cases in which there is  objective
              and  reliable  evidence of the fair  value(s)  of the  undelivered
              item(s) in an arrangement  but no such evidence for one or more of
              the delivered items. In those cases, the residual method should be
              used to allocate the  arrangement  consideration.


                                                                              76
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 33 -     MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR
              EFFECT ON THE FINANCIAL STATEMENTS (CONT'D)

A.       MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP (CONT'D)

         18.  RECENTLY ISSUED ACCOUNTING STANDARDS (CONT'D)

              The guidance in this Issue is effective  for revenue  arrangements
              entered  into in  fiscal  years  beginning  after  June 15,  2003.
              Alternatively,   entities  may  elect  to  report  the  change  in
              accounting as a  cumulative-effect  adjustment in accordance  with
              Opinion  20. If so elected,  disclosure  should be made in periods
              subsequent to the date of initial application of this consensus of
              the amount of recognized  revenue that was previously  included in
              the  cumulative  effect  adjustment.   The  Company  is  currently
              evaluating the effect of EITF 00-21 on the consolidated  financial
              statements.

B.       THE EFFECT OF THE MATERIAL  DIFFERENCES  BETWEEN  ISRAELI GAAP AND U.S.
         GAAP ON THE FINANCIAL STATEMENTS

         1.   STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
                                                                                               YEAR ENDED DECEMBER 31,
                                                                                  SUB-       2002         2001        2000
                                                                                         ------------  ----------  -----------
                                                                               SECTION        ADJUSTED NIS (THOUSANDS)
                                                                          ------------   -------------------------------------

                NET INCOME (LOSS) FROM CONTINUING OPERATIONS
<S>                                                                                         <C>          <C>         <C>
                AS REPORTED ACCORDING TO ISRAELI GAAP                                       (27,219)     23,405      (34,351)
                                                                                         ------------  ----------  -----------

                Deferred taxes in respect of inflation adjustments         A.3.a.              (831)     (1,520)      (1,360)
                Deferred taxes in respect of acquisition of
                  subsidiary company                                       A.3.c.                 -        (521)            -
                Marketable securities                                      A.5.                 551        (747)       1,369
                Issuance of shares by investee in a development
                stage  to third party                                      A.7.                   -           -       (1,855)
                Translation of profit and loss items                       A.8.b.             1,994        (110)         627
                Pre-opening Costs                                          A.9.               3,813      (6,152)       1,203
                Venture capital investments                                A.10.                  -       1,024       (1,024)
                Capitalization of finance costs                            A.11.             (1,882)    (20,469)       9,694
                Implementation of the equity method *                      A.12.             (6,157)     (4,049)      (1,028)
                Impairment                                                 A.14.             11,927           -            -
                Capitalization of lease payments                           A.15.              1,908           -            -
                                                                                         ------------  ----------  -----------

                LOSS FROM CONTINUING OPERATION
                 ACCORDING TO U.S. GAAP                                                     (19,712)     (9,139)     (26,725)
                                                                                         ------------  ----------  -----------

                NET INCOME FROM DISCONTINUING OPERATION
                 ACCORDING TO ISRAELI GAAP                                                   90,693      34,587       77,940
                Sale of plant                                              A.16.            (37,863)          -            -
                                                                                         ------------  ----------  -----------

                NET INCOME FROM DISCONTINUING OPERATION
                 ACCORDING TO U.S. GAAP                                                      52,830      34,587       77,940
                                                                                         ------------  ----------  -----------

                NET INCOME                                                                   33,118      25,448       51,215
                                                                                         ============  ==========  ===========
</TABLE>
                *  Restated (See sub-section A.12).


                                                                              77

<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 33 -    MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR
             EFFECT ON THE FINANCIAL STATEMENTS (CONT'D)

B.       THE EFFECT OF THE MATERIAL  DIFFERENCES  BETWEEN  ISRAELI GAAP AND U.S.
         GAAP ON THE FINANCIAL STATEMENTS (CONT'D)

         1.   STATEMENTS OF OPERATIONS (CONT'D)

              EARNINGS PER ORDINARY SHARE (NIS 0.05 PAR VALUE)
<TABLE>
<CAPTION>
                                                                                                       ADJUSTED NIS
                                                                                            ---------------------------------
              1. Basic earnings (loss) per ordinary share:
                                                                                                   YEAR ENDED DECEMBER 31,
                                                                                            ---------------------------------
                                                                                                2002       2001          2000
                                                                                            --------   --------      --------
                 As reported, according to Israeli GAAP (adjusted NIS) from:

<S>                                                                                           <C>         <C>          <C>
                    Continuing operations                                                     (1.63)      1.40         (2.06)
                    Discontinuing operations                                                   5.43       2.07          4.67
                                                                                            --------   --------      --------
                                                                                               3.80       3.47          2.61
                                                                                            ========   ========      ========
                 As per U.S. GAAP (adjusted NIS) from:

                    Continuing operations                                                     (1.18)     (0.55)        (1.60)
                    Discontinuing operations                                                   3.16       2.07          4.67
                                                                                            --------   --------      --------
                                                                                               1.98       1.52          3.07
                                                                                            ========   ========      ========

                 Weighted average number of shares and share equivalents
                   under U.S. GAAP (in thousands)                                            16,691     16,691        16,689
                                                                                            ========   ========      ========

             2. Diluted earnings (loss) per ordinary share:

                                                                                                   YEAR ENDED DECEMBER 31,
                                                                                            ---------------------------------
                                                                                                2002       2001          2000
                                                                                            --------   --------      --------

                 As reported, according to Israeli GAAP (adjusted NIS) from:

                    Continuing operations                                                     (1.69)      1.40         (2.06)
                    Discontinuing operations                                                   5.20       2.07          4.67
                                                                                            --------   --------      --------
                                                                                               3.51       3.47          2.61
                                                                                            ========   ========      ========

                 As per U.S. GAAP (adjusted NIS) from:

                    Continuing operations                                                     (1.18)     (0.55)        (1.60)
                    Discontinuing operations                                                   3.16       2.07          4.67
                                                                                            --------   --------      --------
                                                                                               1.98       1.52          3.07
                                                                                            ========   ========      ========

                 Weighted average number of shares and share equivalents
                   under U.S. GAAP (in thousands)                                            16,691    16,695        16,691
                                                                                            ========   ========      ========

</TABLE>

                                                                              78
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------


NOTE 33 -     MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR
              EFFECT ON THE FINANCIAL STATEMENTS (CONT'D)

B.       THE EFFECT OF THE MATERIAL  DIFFERENCES  BETWEEN  ISRAELI GAAP AND U.S.
         GAAP ON THE FINANCIAL STATEMENTS (CONT'D)

         2.   BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                 DECEMBER 31,
                                                ------------------------------------------------------------------------------
                                                               2002                                     2001
                                                ----------------------------------     ---------------------------------------
                                                    AS     RECONCILI-      AS PER         AS        RECONCILI-       AS PER
                                                REPORTED     ATIONS      U.S. GAAP     REPORTED       ATIONS       U.S. GAAP
                                                --------   ----------    ---------     --------     ----------   -------------
                                                                           ADJUSTED NIS (THOUSANDS)
                                                ------------------------------------------------------------------------------

<S>                                               <C>         <C>          <C>            <C>           <C>            <C>
     Investments, loans and long-term
       receivables, net                           352,480     (41,064)     311,416        357,990       (41,064)       316,926
     Investments in affiliated company *           32,510      (9,778)      22,732              -        23,571         23,571
     Venture capital investments                        -           -            -         29,518       (27,845)         1,673
     Fixed assets, net                          1,637,656      14,137    1,653,793      1,359,870        (6,776)     1,353,094

     Other assets, net                             12,234      29,510       41,744         11,927        23,043         34,970
     Assets related to discontinuing
       operation                                  114,134      42,226      156,360        190,521             -        190,521

     Total assets                               2,443,341      35,031    2,478,372      2,437,989       (29,071)     2,408,918

     Non-current deferred income
      tax liability (asset), net                     (154)     50,209       50,055          8,080        44,787         52,867
     Liabilities related to discontinuing
      operation                                   110,553      80,089      190,642        255,438             -        255,438
     Minority interest                             29,568      (5,796)      23,772         27,916        (5,143)        22,773

     Capital reserve                                    -       2,339        2,339              -         2,890          2,890
     Foreign currency
      translation adjustments *                    38,817         215       39,032          3,407        (9,937)        (6,530)
     Investment in parent company's shares              -     (41,064)     (41,064)             -       (41,064)       (41,064)
     Retained earnings *                          253,945     (50,961)     202,984        278,280       (20,605)       257,675

     Total shareholders' equity                 1,021,407     (89,471)     931,936      1,010,332       (68,716)       941,616

</TABLE>

      *  Restated (See sub-section A.12).



                                                                              79
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 33 -     MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR
              EFFECT ON THE FINANCIAL STATEMENTS (CONT'D)

B.       THE EFFECT OF THE MATERIAL  DIFFERENCES  BETWEEN  ISRAELI GAAP AND U.S.
         GAAP ON THE FINANCIAL STATEMENTS (CONT'D)

         2.   BALANCE SHEETS (CONT'D)

         RECONCILIATION AS OF DECEMBER 31, 2002

<TABLE>
<CAPTION>
         ITEM \ SUBSECTION          A.3.A.    A.3.C.    A.5.      A.6.     A.7.     A.8.A.   A.8.B.    A.9.     A.11.     A.12.
                                  --------   -------  -------   -------  -------   -------  -------  ------  ---------  ---------
                                                                                ADJUSTED NIS (THOUSANDS)
                                  -----------------------------------------------------------------------------------------------
<S>                                <C>         <C>     <C>      <C>         <C>       <C>       <C>     <C>     <C>       <C>
    Investment and loans                -         -        -   (41,064)       -         -        -        -        -         -
    Investments in affiliated
      Companies                         -         -        -         -        -         -        -        -        -    (9,778)
    Fixed assets, net                   -         -        -         -        -         -        -        -  (11,468)        -
    Other assets, Net              10,818    24,071        -         -        -         -        -   (5,379)       -         -
    Assets related to
      discontinuing operations          -         -        -         -        -         -        -        -        -         -

    Total assets                   10,818    24,071        -   (41,064)       -         -        -   (5,379) (11,468)   (9,778)

    Non-current deferred
     income tax liability, net     23,536    24,655        -         -        -         -        -        -      449         -
    Liabilities related to
      discontinuing operations          -         -        -         -        -         -        -        -        -         -
    Minority interest              (5,796)        -        -         -        -         -        -        -        -         -
    Capital reserve                     -         -   (1,173)        -    3,512         -        -        -        -         -
    Foreign currency
     translation adjustments          547       (63)       -         -        -   (10,063)  (2,512)  (1,116)     740     1,456
    Investment in parent
      company's shares                  -         -        -   (41,064)       -         -        -        -        -         -
    Retained earnings              (7,469)     (521)   1,173         -   (3,512)   10,063    2,512   (4,263) (12,657)  (11,234)

    Total shareholders' equity     (6,922)     (584)       -   (41,064)       -         -        -   (5,379) (11,917)   (9,778)




                                    A.13.    A.14.      A.15.    A.16.    TOTAL
                                  --------  -------   --------  -------  ------------
                                              ADJUSTED NIS NIS HOUSANDS)
                                  ---------------------------------------------------
    Investment and loans               -        -          -        -   (41,064)
    Investments in affiliated
      Companies                        -        -          -        -    (9,778)
    Fixed assets, net              4,360   23,153     (1,908)       -    14,137
    Other assets, Net                  -        -          -        -    29,510
    Assets related to
      discontinuing operations         -        -          -   42,226    42,266
    Total assets                   4,360   23,153     (1,908)  42,226    35,031

    Non-current deferred
     income tax liability, net     1,569        -          -        -    50,209
    Liabilities related to
      discontinuing operations         -        -          -   80,089    80,089
    Minority interest                  -        -          -        -    (5,796)
    Capital reserve                    -        -          -        -     2,339
    Foreign currency
     translation adjustments           -   11,226          -        -       215
    Investment in parent
      company's shares                 -        -          -        -   (41,064)
    Retained earnings              2,791   11,927     (1,908) (37,863) (50,961)

    Total shareholders' equity     2,791   23,153     (1,908) (37,863)  (89,471)




</TABLE>


                                                                              80
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 33 -     MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR
              EFFECT ON THE FINANCIAL STATEMENTS (CONT'D)

B.       THE EFFECT OF THE MATERIAL  DIFFERENCES  BETWEEN  ISRAELI GAAP AND U.S.
         GAAP ON THE FINANCIAL STATEMENTS (CONT'D)

         RECONCILIATION AS OF DECEMBER 31, 2001

<TABLE>
<CAPTION>
         ITEM \ SUBSECTION                    A.3.A.    A.3.C.    A.5.      A.6.     A.7.     A.8.A.   A.8.B.    A.9.     A.11.
                                            --------   -------  -------   -------  -------   -------  -------  ------  ---------
                                                                               ADJUSTED NIS (THOUSANDS)
                                            --------------------------------------------------------------------------------------
<S>                                         <C>         <C>     <C>      <C>         <C>       <C>       <C>     <C>     <C>

         Investment and loans                     -         -        -   (41,064)        -         -         -        -         -
         Investment in affiliated companies       -         -        -         -         -         -         -        -         -
         Investment in venture capital
          affiliated company                      -         -        -         -         -         -         -        -         -
         Fixed assets, net                        -         -        -         -         -         -         -        -   (11,136)
         Other assets, Net                    9,648    21,371        -         -         -         -         -   (7,976)        -

         Total assets                         9,648    21,371        -   (41,064)        -         -         -   (7,976)  (11,136)

         Non-current deferred income
          tax liability, net                 21,082    21,891        -         -         -         -         -        -       245
         Minority interest                   (5,143)        -        -         -         -         -         -        -         -
         Capital reserve                          -         -     (622)        -     3,512         -         -        -         -
         Foreign currency translation
          adjustments                           347         -        -         -         -   (10,063)     (518)     100      (606)
         Investment in parent
           company's shares                       -         -        -   (41,064)        -         -         -        -         -
         Retained earnings                   (6,638)     (521)     622         -    (3,512)   10,063       518   (8,076)  (10,775)

         Total shareholders' equity          (6,291)     (521)       -   (41,064)        -         -         -   (7,976)  (11,381)

         ITEM \ SUBSECTION                    A.12.        A.13.    TOTAL
                                            ---------    --------  ------------
                                                  ADJUSTED NIS (THOUSANDS)
                                            -----------------------------------

         Investment and loans                       -         -     (41,064)
         Investment in affiliated companies    23,571         -      23,571
         Investment in venture capital
          affiliated company                  (27,845)        -     (27,845)
         Fixed assets, net                          -     4,360      (6,776)
         Other assets, Net                          -         -      23,043

         Total assets                          (4,274)    4,360     (29,071)

         Non-current deferred income
          tax liability, net                        -     1,569      44,787
         Minority interest                          -         -      (5,143)
         Capital reserve                            -         -       2,890
         Foreign currency translation
          adjustments                             803         -      (9,937)
         Investment in parent
           company's shares                         -         -     (41,064)
         Retained earnings                     (5,077)    2,791     (20,605)

         Total shareholders' equity            (4,274)    2,791     (68,716)
</TABLE>
         SUBSECTION:
         -----------
         A.3.a. Deferred taxes in respect of inflation  adjustments.
         A.3.c. Deferred taxes in respect of acquisition of subsidiary company
         A.5.   Marketable securities.
         A.6.   Investment in parent Company's shares.
         A.7.   Issuance of shares by investee in a development stage to third
                party.
         A.8.a. Conditions   necessary  to  be  considered  as  an "autonomous
                foreign entity".
         A.8.b. Translation of profit and loss items.
         A.9.   Pre-opening  Costs.
         A.11.  Capitalization  of finance costs.
         A.12.  Implementation of the equity method.
         A.13.  Transactions  between  companies  under  common  control  -
                Provision for impairment loss.
         A.14.  Impairment.
         A.15.  Capitalization of lease payments.
         A.16.  Sale of plant.

                                                                              81
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 33 -     MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR
              EFFECT ON THE FINANCIAL STATEMENTS (CONT'D)

B.       THE EFFECT OF THE MATERIAL  DIFFERENCES  BETWEEN  ISRAELI GAAP AND U.S.
         GAAP ON THE FINANCIAL STATEMENTS (CONT'D)

         3.   STATEMENT OF CASH FLOWS

              The  statements  of cash flows are  prepared  according to Israeli
              GAAP which differs on certain issues from U.S. GAAP, as follows:

              a)     Supplemental information required according to U.S. GAAP:

<TABLE>
<CAPTION>
                                                                                      YEAR ENDED DECEMBER 31,
                                                                          ----------------------------------------------
                                                                                 2002            2001              2000
                                                                          -----------    ------------    --------------
                                                                                     ADJUSTED NIS (THOUSANDS)
                                                                          ----------------------------------------------
<S>                                                                           <C>             <C>               <C>
                       Interest paid                                          30,251          33,044            25,299
                                                                          ===========    ============    ===============

                       Income tax paid                                         4,483           4,281            27,754
                                                                          ===========    ============    ===============
</TABLE>

              b)     Short-term investments and deposits:

                     ACCORDING TO ISRAELI GAAP:

                     The changes in  short-term  deposits  and  investments  are
                     presented in net amounts,  which are composed of purchases,
                     sales  and gain or loss  derived  from  such  deposits  and
                     investments.

                     ACCORDING TO U.S. GAAP:

                     Purchases and sales of short-term  deposits and investments
                     should be classified  separately,  unless such deposits and
                     investments are for periods less than three months.

                     Following  details  regarding the  investments and proceeds
                     from deposits and investments:

<TABLE>
<CAPTION>
                                                                                      YEAR ENDED DECEMBER 31,
                                                                          ----------------------------------------------
                                                                                 2002            2001              2000
                                                                          -----------    ------------    --------------
                                                                                     ADJUSTED NIS (THOUSANDS)
                                                                          ----------------------------------------------
<S>                                                                            <C>            <C>               <C>
                       Investment                                              1,600          12,329            86,919
                                                                          ===========    ============    ===============

                       Sale proceeds*                                          3,508         113,534           161,737
                                                                          ===========    ============    ===============

                     *      Including interest.
</TABLE>



                                                                              82
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 33 -     MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR
              EFFECT ON THE FINANCIAL STATEMENTS (CONT'D)

B.       THE EFFECT OF THE MATERIAL  DIFFERENCES  BETWEEN  ISRAELI GAAP AND U.S.
         GAAP ON THE FINANCIAL STATEMENTS (CONT'D)

         3.   STATEMENT OF CASH FLOWS (CONT'D)

              c)     Effect of exchange rate changes on cash and cash
                     equivalents:

                     ACCORDING TO ISRAELI GAAP:

                     The  statement  shall  report the effect of  exchange  rate
                     changes on cash balances held in foreign  currencies,  only
                     in "autonomous foreign entities", in a separate part of the
                     reconciliation  of the change in cash and cash  equivalents
                     during the period.

                     ACCORDING TO U.S. GAAP:

                     The  statement  shall  report the effect of  exchange  rate
                     changes on all cash balances held in foreign  currencies as
                     a separate part of the reconciliation of the change in cash
                     and cash equivalents during the period.

<TABLE>
<CAPTION>
                                                                                      YEAR ENDED DECEMBER 31,
                                                                          ----------------------------------------------
                                                                                 2002            2001              2000
                                                                          -----------    ------------    --------------
                                                                                     ADJUSTED NIS (THOUSANDS)
                                                                          ----------------------------------------------
<S>                                                                            <C>             <C>              <C>
                       As reported, according to Israeli GAAP                  2,227           3,106            (1,150)

                       Reconciliation as per U.S. GAAP (*)                     5,349          23,190            (9,337)
                                                                          -----------    ------------    --------------

                                                                               7,576          26,296           (10,487)
                                                                          ===========    ============    ===============

</TABLE>

                       (*) As per U.S. GAAP these amounts  reduce the cash flows
                           from operating activities.



                                                                              83
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 33 -     MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR
              EFFECT ON THE FINANCIAL STATEMENTS (CONT'D)

B.       THE EFFECT OF THE MATERIAL  DIFFERENCES  BETWEEN  ISRAELI GAAP AND U.S.
         GAAP ON THE FINANCIAL STATEMENTS (CONT'D)

         4.   PROPORTIONATE CONSOLIDATION

              Summarized   data   regarding   the   differences    between   the
              proportionate consolidation method and the equity method:

<TABLE>
<CAPTION>
                                                                     AS REPORTED IN       EFFECT OF
                                                                     THESE FINANCIAL    PROPORTIONATE        EQUITY
                                                                       STATEMENTS       CONSOLIDATION        METHOD
                                                                     --------------   -----------------   ---------------
                                                                                     ADJUSTED NIS (THOUSANDS)
                                                                     ----------------------------------------------------
           DECEMBER 31, 2002:
           BALANCE SHEET:
<S>                                                                          <C>               <C>              <C>
           Current assets                                                    294,327           (29,726)         264,601
           Non-current assets                                              2,034,880          (471,933)       1,562,947
           Assets related to discontinuing  operation                        114,134                 -          114,134
           Current liabilities                                               642,494          (133,025)         509,469
           Non-current liabilities                                           668,887          (368,634)         300,253
           Liabilities related to discontinuing operation                    110,553                 -          110,553

           STATEMENT OF OPERATIONS:
           Revenues                                                          212,188          (138,416)          73,772
           Gross profit                                                       75,003           (52,143)          22,860
           Operating  loss                                                   (21,670)          (11,338)         (33,008)

           STATEMENT OF CASH FLOWS FROM
                CONTINUING OPERATION:
           Net cash provided by (used in) operating activities                 3,826            (7,414)          (3,588)
           Net cash used in investing activities                            (176,453)           27,020         (149,433)
           Net cash used in financing activities                             (52,751)          (19,035)         (71,786)


           DECEMBER 31, 2001:

           BALANCE SHEET:
           Current assets                                                    488,163           (24,363)         463,800
           Non-current assets                                              1,759,305          (396,299)       1,363,006
           Assets related to discontinuing  operation                        190,521                 -          190,521
           Current liabilities                                               524,313           (75,465)         448,848
           Non-current liabilities                                           647,906          (345,197)         302,709
           Liabilities related to discontinuing operation                    255,438                 -          255,438

           STATEMENT OF OPERATIONS:
           Revenues                                                          152,119           (79,177)          72,942
           Gross profit                                                       46,976           (29,454)          17,522
           Operating loss                                                    (15,501)          (12,640)         (28,141)

           STATEMENT OF CASH FLOWS FROM
             CONTINUING OPERATION:
           Net cash provided by operating activities                          23,461           (12,872)          10,589
           Net cash used in investing activities                            (175,026)           90,085          (84,941)
           Net cash provided by (used in) financing activities                14,862           (75,135)         (60,273)

</TABLE>



                                                                              84
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 33 -     MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR
              EFFECT   ON   THE   FINANCIAL STATEMENTS (CONT'D)

B.       THE EFFECT OF THE MATERIAL  DIFFERENCES  BETWEEN  ISRAELI GAAP AND U.S.
         GAAP ON THE FINANCIAL STATEMENTS (CONT'D)

         5.   ADDITIONAL INFORMATION ACCORDING TO U.S. GAAP

         a.   THE EFFECT OF PRO FORMA DATA CALCULATED ACCORDING TO SFAS NO. 123:

              (i)   Under  U.S.  GAAP  the  Company  applies  APB  - 25  in  its
                    financial   statements  and  in  certain  events   Financial
                    Accounting Standards Board Statement No. 123 "Accounting for
                    Stock-Based  Compensation"  ("SFAS  123").  The  Company  is
                    required to disclose  pro forma data  according to SFAS 123.
                    Therefore, had compensation expense for shares granted under
                    the Company's  Incentive  Shares Plan  described in Note 17,
                    been  determined  based  on the  fair  value  at the date of
                    grant, consistent with the method of SFAS 123. The Company's
                    net  income  and  earnings  per  Ordinary  Share  would have
                    changed to the pro forma amounts indicated below.

              (ii)  The Company applies the Black-Scholes model to estimate fair
                    value  of the  incentive  shares,  utilizing  the  following
                    assumptions:

                    1.   Dividend yield of zero percent

                    2.   Risk free interest rate of 6%

                    3.   Expected  lives of 5 years as of the date of grant  for
                         options and shares.

                    4.   Expected volatility of approximately 24% as of the date
                         of grant.

                    For pro  forma  disclosure,  the  fair  value  of the  share
                    options,  as estimated,  is amortized over the period of the
                    benefit.

              (iii) Pro forma Data consists as follows:

<TABLE>
<CAPTION>
                                                                                            YEAR ENDED DECEMBER 31,
                                                                               --------------------------------------------
                                                                                    2002           2001           2000
                                                                               --------------  -------------  -------------
                                                                                           ADJUSTED NIS (THOUSANDS)
                                                                               --------------------------------------------

<S>                                                                                   <C>            <C>            <C>
           Net income according to U.S GAAP                                           33,118         25,448         51,215
           Add: application of compensation expenses
             according to Statement 123                                               (1,058)           (47)             -
                                                                               --------------  -------------  -------------
           Pro forma net income                                                       32,060         25,401         51,215
                                                                               ==============  =============  =============
           Earnings per ordinary share (NIS 0.01 par value),
             as reported according to Israeli GAAP - basic and diluted                  1.98           3.47           3.07
                                                                               ==============  =============  =============
           Earning  per ordinary share (NIS 0.01 par value),
             pro forma - basic and diluted                                              1.92           1.52           3.07
                                                                               ==============  =============  =============
</TABLE>


                                                                              85
<PAGE>
                                                                 Elscint Limited
                                                        and subsidiary companies
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
--------------------------------------------------------------------------------

NOTE 33 -     MATERIAL DIFFERENCES BETWEEN ISRAELI GAAP AND U.S. GAAP AND THEIR
              EFFECT ON THE FINANCIAL STATEMENTS (CONT'D)

B.       THE EFFECT OF THE MATERIAL  DIFFERENCES  BETWEEN  ISRAELI GAAP AND U.S.
         GAAP ON THE FINANCIAL STATEMENTS (CONT'D)

         5.   ADDITIONAL INFORMATION ACCORDING TO U.S. GAAP (CONT'D)

         b.   VALUATION ALLOWANCE OF DEFERRED TAX ASSETS

              The differences between Israeli GAAP and U.S. GAAP as described in
              paragraph  A.3.b  above,  changed  the  balance  of the  valuation
              allowance as follows:

<TABLE>
<CAPTION>
                                                                                      DECEMBER 31,      DECEMBER 31,
                                                                                              2002              2001
                                                                                  ----------------    --------------
                                                                                         ADJUSTED NIS (THOUSANDS)
                                                                                  ----------------------------------
<S>                                                                                       <C>                <C>
                  As reported, according to Israeli GAAP                                  178,978            155,705
                  Reconciliation as per U.S. GAAP                                          (3,442)            (6,672)
                                                                                  ----------------    --------------

                                                                                          175,536            149,033
                                                                                  ================    ==============
</TABLE>


          c.  PRO FORMA INFORMATION

              The following consolidated unaudited pro forma information, as per
              U.S. GAAP, gives effect to the business combination,  as described
              in Annex B of the  consolidated  statement of cash flows, as if it
              had occurred on January 1, 2001.

<TABLE>
<CAPTION>
                                                                                          YEAR ENDED DECEMBER 31,
                                                                                  ----------------------------------
                                                                                              2002              2001
                                                                                  ----------------    --------------
                                                                                         ADJUSTED NIS (THOUSANDS)
                                                                                  ----------------------------------
<S>                                                                                       <C>               <C>
                 Revenues                                                                 212,188           159,005
                 Net income according to U.S. GAAP                                         33,118            26,852
                 Net basic and diluted earnings per share (adjusted NIS)                     1.98              1.61
</TABLE>


       6.     COMPREHENSIVE INCOME

              "Comprehensive  income" Composed of the change, during the current
              period, in Company's  shareholder equity that does not derive from
              shareholders'  investments or from the distribution of earnings to
              shareholders  (including  capital  reserve from  transaction  with
              controlling shareholders).

<TABLE>
<CAPTION>
                                                                                         YEAR ENDED DECEMBER 31,
                                                                              ------------------------------------------
                                                                                    2002            2001            2000
                                                                              ----------      ----------     -----------
                                                                                         ADJUSTED NIS (THOUSANDS)
                                                                              ------------------------------------------
<S>                                                                              <C>             <C>             <C>
                Net income according to U.S. GAAP                                33,118          25,448          51,215
                                                                              ----------      ----------     -----------
                OTHER COMPREHENSIVE INCOME (LOSS), AFTER TAX:

                Foreign currency translation adjustments                         45,562          16,983         (10,250)
                Unrealized (loss) gain from securities                             (551)            747           1,740
                                                                              ----------      ----------     -----------
                Total comprehensive income                                       78,129          43,178          42,705
                                                                              ==========      ==========     ===========

</TABLE>

                                                                              86
<PAGE>

                                                                Elscint Limited
                                                       and subsidiary companies
Appendix to the Consolidated Financial Statements
--------------------------------------------------------------------------------

THE FOLLOWING TABLE SETS FORTH INFORMATION ABOUT ELSCINT'S  SIGNIFICANT INVESTEE
COMPANIES:

<TABLE>
<CAPTION>
                                                                                                    ELSCINT'S
                                                                              COUNTRY OF            DIRECT/INDIRECT
NAME OF COMPANY                                         ABBREVIATED NAME      ORGANIZATION          OWNERSHIP (PERCENTAGE)
----------------------------------------------------    -------------------   -------------------   -----------------------
                                                                                                     EQUITY       VOTING

SUBSIDIARY AND JOINTLY CONTROLLED COMPANIES
-------------------------------------------
<S>                                                     <C>                    <C>                      <C>          <C>
P.E.P. Trust Ltd.                                       ("P.E.P")              Israel                100.0        100.0
Elscint Holdings and Investments N.V.                   ("E.H.")               Netherlands           100.0        100.0
BEA Hotels N.V.                                         ("BEA")                Netherlands           100.0        100.0
BEA Hotels Eastern Europe.                              ("BHEF")               Netherlands           100.0        100.0
Tavarilla Ltd.                                          ("Tavarilla")          Jersey                50.0         50.0
Alora Ltd.                                              ("Alora")              Jersey                45.0         45.0
Andrassy 25 Kft                                         ("Andrassy")           Hungary               50.0         50.0
Park Plaza Hotel Sandton (Pty) Ltd.                     ("Sandton")            South Africa          33.3 *       33.3
Euston Road Hotel Ltd.                                  ("ERH")                Jersey                35.0         35.0
Euston Road Hotel Operator Ltd.                         ("ERO")                United Kingdom        35.0         35.0
Victory Enterprises II B.V.                             ("VE II")              Netherlands           100.0        100.0
Victory Enterprises III B.V.                            ("VE III")             Netherlands           50.0         50.0
Victoria Hotel C.V. - Limited Partnership               ("VHCV")               Netherlands           50.0         50.0
Victoria Hotel & Restaurant Investments B.V.            ("VHRI")               Netherlands           50.0         50.0
Grandis Netherlands Holding B.V.                        ("Grandis")            Netherlands           45.0         50.0
Albert Hotel Holding Ltd.                               ("Albert Holding")     Jersey                45.0         50.0
Albert Hotel Ltd.                                       ("Albert Hotel")       Jersey                45.0         50.0
Astridplaza N.V.                                        ("AP")                 Belgium               100.0        100.0
Utrecht Victoria Hotel B.V.                             ("UVH")                Netherlands           50.0         50.0
Domino International Hotels S.R.L.                      ("Domino")             Romania               100.0        100.0
SC Bucuresti Turism S.A.                                ("Bucuresti")          Romania               69.01 *      69.01 *
Sherlock Holmes Park Plaza Ltd.                         ("SHPP)                UK                    45.0         45.0
Show Hotel Holding B.V.                                 ("SHH")                Netherlands           35.0         35.0
Victoria London Hotel Holding B.V.                      ("VLH")                Netherlands           50.0         50.0
Riverbank Hotel Holding B.V.                            ("RBH")                Netherlands           45.0         45.0
Victoria Park Plaza Operator Ltd.                       ("VPPO")               UK                    50.0         50.0
S.L.S. Sails Ltd.  (formerly S.L.S. trust Ltd.)         ("SLS")                Israel                100.0        100.0
Elscint Biomedical Ltd.                                 ("EBM")                Israel                100.0        100.0
Elscint, Inc.                                           ("Elscint Inc")        United States         100.0        100.0
Elscint France SA                                       ("Elscint France")     France                100.0        100.0
Elscint Belgium NV                                      ("Elscint Belgium")    Belgium               100.0        100.0
Elscint (Asia Pacific) Ltd.                             ("Elscint Asia")       Hong Kong             100.0        100.0
Products Medico - Hospitalares Elscint Ltd.             ("Elscint Brazil")     Brazil                100.0        100.0
Elscint De Mexico S. De R.L. De C.V.                    ("Elscint Mexico")     Mexico                100.0        100.0
Gamida cell ltd (**)                                    ("Gamida")             Israel                37.1         37.1

</TABLE>
* Effective shareholding or voting rights.

** Affiliated



                                                                              87
<PAGE>


JOSEPH MOSHKOVSKY                                    CERTIFIED PUBLIC ACCOUNTANT
747 THIRD AVENUE, 4TH FLOOR, NEW YORK, NY 10017-2803           ISRAEL &U. S. A.

E-MAIL:    JOSEPH@MOSHKOVSKY.COM                         TELEPHONE: 212-838-4646
           HTTP://WWW.MOSHKOVSKY.COM                     FACSIMILE: 212-838-8155

                          INDEPENDENT AUDITOR'S REPORT

Board of Directors
Elscint, Inc.
New York, NY

I have audited the accompanying consolidated balance sheets of Elscint, Inc. as
of December 31, 2002 and 2001, and the related consolidated statements of
operations and deficit and cash flows for each of the years then ended. These
consolidated financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these financial
statements based on my audit.

Except as discussed in the following paragraph, I conducted my audit in
accordance with generally accepted auditing standards in the United States of
America. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatements. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.

I was unable to assess the collectibility of a $54 million loan receivable from
an affiliate BEA Hotels NV. I am also unable to assess the collectibility of
$7.9 million due from the Parent, Elscint, Limited.

In my opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ELSCINT, INC. as of
December 31, 2002 and 2001, and the results of its operations and its cash flows
for each of the years then ended, in conformity with generally accepted
accounting principles in the United States of America, except for the following:

The Company has a 50% investment in Elscint (Asia-Pacific) Ltd. for which it did
not record 50% of the loss of Elscint (Asia-Pacific) for the period.

February 5, 2003


<PAGE>








                         REPORT OF INDEPENDENT AUDITORS

                             TO THE SHAREHOLDERS OF

                                GAMIDA CELL LTD.

                          (A DEVELOPMENT STAGE COMPANY)

We have audited the accompanying consolidated balance sheets of Gamida cell Ltd.
(a development stage company) ("the Company") and its subsidiary as of December
31, 2001 and 2002, and the related consolidated statements of operations,
changes in shareholders' equity and cash flows for each of the three years in
the period ended December 31, 2002 and for the period from February 17, 1998
(date of inception) through December 31, 2002. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the Company's management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above, present
fairly, in all material respects, the consolidated financial position of the
Company and its subsidiary as of December 31, 2001 and 2002 and the consolidated
results of their operations and cash flows for each of the three years in the
period ended December 31, 2002and for the period from February 17, 1998 (date of
inception) through December 31, 2002, in conformity with accounting principles
generally accepted in the United States.

Tel Aviv, Israel                               KOST FORER & GABBAY
March 11, 2003                           A Member of Ernst & Young Global



<PAGE>


ALBERT HOTEL LIMITED

INDEPENDENT AUDITORS' REPORT FOR THE YEAR ENDED 31 DECEMBER 2002
--------------------------------------------------------------------------------

TO THE SHAREHOLDERS OF ALBERT HOTEL LIMITED
--------------------------------------------------------------------------------


We have audited the accompanying balance sheets of Albert Hotel Limited ("the
Company") as of 31 December 2002 and 2001 and the statements of changes in
shareholders' equity for each of the two years in the period ended 31 December
2002. The financial statements, which have been prepared in accordance with
International Accounting Standards, are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with International Standards on Auditing
and US generally accepted auditing standards. Those standards require that we
plan and perform the audit in order to obtain reasonable assurance that the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

The financial statements do not contain a statement of cash flows as required by
International Accounting Standard No. 7. In our opinion, information about the
company's cash flows is necessary for a proper understanding of the company's
state of affairs and result.

Except for absence of the information about the company's cash flows, as
mentioned above, in our opinion the financial statements present fairly in all
material respects the financial position of the Company as of 31 December 2002
and 2001 and the changes in shareholders equity for each of the two years in the
period ended 31 December 2002 in accordance with International Accounting
Standards.



BDO STOY HAYWARD
--------------------------------------------------------------------------------
Chartered Accountants and Registered  Auditors
Hatfield

Date: 31 March 2003


<PAGE>


ALORA LIMITED

INDEPENDENT AUDITORS' REPORT FOR THE YEAR ENDED 31 DECEMBER 2002
--------------------------------------------------------------------------------

TO THE SHAREHOLDERS OF ALORA LIMITED
--------------------------------------------------------------------------------


We have audited the accompanying balance sheets of Alora Hotel Limited ("the
Company") as of 31 December 2002 and 2001 and the related statements of income
and the statements of changes in shareholders' equity for each of the two years
in the period ended 31 December 2002. The financial statements, which have been
prepared in accordance with International Accounting Standards, are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with International Standards on Auditing
and US generally accepted auditing standards. Those standards require that we
plan and perform the audit in order to obtain reasonable assurance that the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

The financial statements do not contain a statement of cash flows as required by
International Accounting Standard No. 7. In our opinion, information about the
company's cash flows is necessary for a proper understanding of the company's
state of affairs and result.

Except for absence of the information about the company's cash flows, as
mentioned above, in our opinion the financial statements present fairly in all
material respects the financial position of the Company as of 31 December 2002
and 2001 and the results of its operations and the changes in shareholders
equity for each of the two years in the period ended 31 December 2002 in
accordance with International Accounting Standards.


BDO STOY HAYWARD
--------------------------------------------------------------------------------
Chartered Accountants and Registered Auditors
Hatfield

Date: 31 March 2003


<PAGE>






EUSTON ROAD HOTEL LIMITED

INDEPENDENT AUDITORS' REPORT FOR THE YEAR ENDED 31 DECEMBER 2002
--------------------------------------------------------------------------------

TO THE SHAREHOLDERS OF EUSTON ROAD HOTEL LIMITED
--------------------------------------------------------------------------------


We have audited the accompanying balance sheets of Euston Road Hotel Limited
("the Company") as of 31 December 2002 and 2001 and the related statements of
income and the statements of changes in shareholders' equity for each of the two
years in the period ended 31 December 2002. The financial statements, which have
been prepared in accordance with International Accounting Standards, are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with International Standards on Auditing
and US generally accepted auditing standards. Those standards require that we
plan and perform the audit in order to obtain reasonable assurance that the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

The financial statements do not contain a statement of cash flows as required by
International Accounting Standard No. 7. In our opinion, information about the
company's cash flows is necessary for a proper understanding of the company's
state of affairs and result.

Except for absence of the information about the company's cash flows, as
mentioned above, in our opinion the financial statements present fairly in all
material respects the financial position of the Company as of 31 December 2002
and 2001 and the results of its operations and the changes in shareholders
equity for each of the two years in the period ended 31 December 2002 in
accordance with International Accounting Standards.

BDO STOY HAYWARD

--------------------------------------------------------------------------------
Chartered Accountants and Registered Auditors
Hatfield

Date: 31 March 2003


<PAGE>






EUSTON ROAD HOTEL OPERATOR LIMITED

INDEPENDENT AUDITORS' REPORT FOR THE YEAR ENDED 31 DECEMBER 2002

--------------------------------------------------------------------------------

TO THE SHAREHOLDERS OF EUSTON ROAD HOTEL OPERATOR LIMITED
--------------------------------------------------------------------------------


We have audited the accompanying balance sheets of Euston Road Hotel Operator
Limited ("the Company") as of 31 December 2002 and 2001 and the related
statements of income and the statements of changes in shareholders' equity for
each of the two years in the period ended 31 December 2002. The financial
statements, which have been prepared in accordance with International Accounting
Standards, are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with International Standards on Auditing
and US generally accepted auditing standards. Those standards require that we
plan and perform the audit in order to obtain reasonable assurance that the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

The financial statements do not contain a statement of cash flows as required by
International Accounting Standard No. 7. In our opinion, information about the
company's cash flows is necessary for a proper understanding of the company's
state of affairs and result.

Except for absence of the information about the company's cash flows, as
mentioned above, in our opinion the financial statements present fairly in all
material respects the financial position of the Company as of 31 December 2002
and 2001 and the results of its operations and the changes in shareholders
equity for each of the two years in the period ended 31 December 2002 in
accordance with International Accounting Standards.


BDO STOY HAYWARD
--------------------------------------------------------------------------------
Chartered Accountants and Registered Auditors
Hatfield

Date: 31 March 2003


<PAGE>


INDEPENDENT AUDITORS' REPORT FOR THE YEAR ENDED 31 DECEMBER 2002
--------------------------------------------------------------------------------

TO THE SHAREHOLDERS OF GRANDIS NETHERLANDS HOLDING BV
--------------------------------------------------------------------------------


We have audited the accompanying balance sheets of Grandis Netherlands Holding
BV ("the Company") as of 31 December 2002 and 2001 and the related statements of
income and the statements of changes in shareholders' equity for each of the two
years in the period ended 31 December 2002. The financial statements, which have
been prepared in accordance with International Accounting Standards, are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with International Standards on Auditing
and US generally accepted auditing standards. Those standards require that we
plan and perform the audit in order to obtain reasonable assurance that the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

The financial statements do not contain a statement of cash flows as required by
International Accounting Standard No. 7. In our opinion, information about the
company's cash flows is necessary for a proper understanding of the company's
state of affairs and result.

Except for absence of the information about the company's cash flows, as
mentioned above, in our opinion the financial statements present fairly in all
material respects the financial position of the Company as of 31 December 2002
and 2001 and the results of its operations and the changes in shareholders
equity for each of the two years in the period ended 31 December 2002 in
accordance with International Accounting Standards.



BDO STOY HAYWARD
--------------------------------------------------------------------------------
Chartered Accountants and Registered Auditors
Hatfield

Date: 31 March 2003


<PAGE>




SHERLOCK HOLMES PARK PLAZA LIMITED

INDEPENDENT AUDITORS' REPORT FOR THE YEAR ENDED 31 DECEMBER 2002
--------------------------------------------------------------------------------

TO THE SHAREHOLDERS OF SHERLOCK HOLMES PARK PLAZA LIMITED
--------------------------------------------------------------------------------


We have audited the accompanying balance sheets of Sherlock Holmes Park Plaza
Limited ("the Company") as of 31 December 2002 and 2001 and the related
statements of income and the statements of changes in shareholders' equity for
each of the two years in the period ended 31 December 2002. The financial
statements, which have been prepared in accordance with International Accounting
Standards, are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with International Standards on Auditing
and US generally accepted auditing standards. Those standards require that we
plan and perform the audit in order to obtain reasonable assurance that the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

The financial statements do not contain a statement of cash flows as required by
International Accounting Standard No. 7. In our opinion, information about the
company's cash flows is necessary for a proper understanding of the company's
state of affairs and result.

Except for absence of the information about the company's cash flows, as
mentioned above, in our opinion the financial statements present fairly in all
material respects the financial position of the Company as of 31 December 2002
and 2001 and the results of its operations and the changes in shareholders
equity for each of the two years in the period ended 31 December 2002 in
accordance with International Accounting Standards.



BDO STOY HAYWARD
--------------------------------------------------------------------------------
Chartered Accountants and Registered Auditors
Hatfield

Date: 31 March 2003


<PAGE>









VICTORIA PARK PLAZA OPERATOR LIMITED

INDEPENDENT AUDITORS' REPORT FOR THE YEAR ENDED 31 DECEMBER 2002
--------------------------------------------------------------------------------

TO THE SHAREHOLDERS OF VICTORIA PARK PLAZA OPERATOR LIMITED
--------------------------------------------------------------------------------

We have audited the accompanying balance sheets of Victoria Park Plaza Operator
Limited ("the Company") as of 31 December 2002 and 2001 and the related
statements of income and the statements of changes in shareholders' equity for
each of the two years in the period ended 31 December 2002. The financial
statements, which have been prepared in accordance with International Accounting
Standards, are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with International Standards on Auditing
and US generally accepted auditing standards. Those standards require that we
plan and perform the audit in order to obtain reasonable assurance that the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

The financial statements do not contain a statement of cash flows as required by
International Accounting Standard No. 7. In our opinion, information about the
company's cash flows is necessary for a proper understanding of the company's
state of affairs and result.

Except for absence of the information about the company's cash flows, as
mentioned above, in our opinion the financial statements present fairly in all
material respects the financial position of the Company as of 31 December 2002
and 2001 and the results of its operations and the changes in shareholders
equity for each of the two years in the period ended 31 December 2002 in
accordance with International Accounting Standards.

BDO STOY HAYWARD
--------------------------------------------------------------------------------
Chartered Accountants and Registered  Auditors
Hatfield

Date: 31 March 2003




<PAGE>

To the shareholders
Bea Hotels Eastern Europe
Amsterdam, The Netherlands

Independent Auditor's Report
----------------------------

We have audited the accompanying balance sheet of Bea Hotels Eastern Europe (the
Company) as at December 31, 2002, and the related statements of operations, cash
flow and changes in equity for the year then ended.  These financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these financial statements based on our audit.

We conducted  our audit in  accordance  with U.S.  generally  accepted  auditing
standards. These standards require that we plan and perform the audits to obtain
reasonable assurance as to whether the financial statements are free of material
misstatement.  An audit includes an  examination,  on a test basis,  of evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting  policies used and significant  estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We  believe  that our audit  provide a  reasonable  basis for our
opinion.

In our opinion,  the accompanying  financial  statements  present fairly, in all
material respects, the financial position of the Company as at December 31, 2002
and the results of its  operations,  its cash flow and changes in equity for the
year then ended in conformity with international accounting standards.

Without further qualifying our opinion we draw attention to the following:

         o As of December 31, 2002,  the Company has an  accumulated  deficit of
KROL  27,515,607,  its current  liabilities  exceed its  current  assets by KROL
108,089,762  and  its  total  liabilities   exceed  its  total  assets  by  KROL
33,542,227.  B.E.A.  Hotels N.V. has indicated  that it will provide  continuing
financial  support to the Company to meet all its obligations and liabilities as
and  when  the  need  arises.  The  financial  statements  do  not  include  any
adjustments that might result from the outcome of this uncertainty.

         o As  described  in  Note  8,  there  are  some  proceedings  presently
conducted which relate to the cancellation of the tender on which  privatisation
of Bucuresti  Turism was based and also to a partial  cancellation  of the share
pledge and  guarantee  agreement  concluded  by and between  Domino and the bank
which financed the acquisition of those shares in December 2000.

On the  basis of legal  advice,  the  management  does not  anticipate  that any
materially  adverse  consequences or negative  outcome will result for Domino or
its subsidiary S.C. Bucuresti S.A. Turism out of these investigations.

Bucharest, Romania
March 17, 2003


<PAGE>


To the shareholders
S.C. Bucuresti Turism S.A.
Bucharest, Romania

                          INDEPENDENT AUDITOR'S REPORT

We have  audited  the balance  sheet of S.C.  Bucuresti  Turism S.A.  (Bucuresti
Turism) as at December 31, 2002 and the related  statements of operations,  cash
flow and changes in equity for the year then ended.  These financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
issue a report on these financial statements based on our audit.

We conducted  our audit in  accordance  with U.S.  generally  accepted  auditing
standards. These standards require that we plan and perform the audits to obtain
reasonable assurance as to whether the financial statements are free of material
misstatement.  An audit includes an  examination,  on a test basis,  of evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting  policies used and significant  estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We  believe  that our audit  provide a  reasonable  basis for our
opinion.

In our  opinion,  the  financial  statements  present  fairly,  in all  material
respects,  the financial  position of S.C.  Bucuresti Turism S.A. as of December
31,  2002,  and the  results  of its  operations,  its cash flow and  changes in
shareholders'  equity for the year then ended, in conformity with  international
accounting standards.

Without  qualifying  our opinion we draw  attention to Note 17 to the  financial
statements:  various  proceedings  are being  conducted  in  Romania,  which may
detrimentally  affect  Bucuresti Turism and/or its  shareholders,  which seek to
challenge the validity of certain  resolutions  adopted by the  shareholders  of
Bucuresti Turism.

Based on legal advice,  the management  does not anticipate  that any materially
adverse consequences or negative outcome will result for Bucuresti Turism out of
the proceedings  described in Note 17 and is of the opinion that these claims do
not significantly affect Domino's rights in and to Bucuresti Turism's shares and
in the Bucuresti Complex owned by Bucuresti Turism.

Bucharest, Romania
March 17, 2003


<PAGE>


To the shareholder
S.C. Domino International Hotels S.R.L.
Bucharest, Romania

INDEPENDENT AUDITOR'S REPORT
----------------------------

We have audited the balance  sheet of S.C.  Domino  International  Hotels S.R.L.
(Domino) as at December 31, 2002 and the related statements of operations,  cash
flow and changes in equity for the year then ended.  These financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
issue a report on these financial statements based on our audit.

We conducted  our audit in  accordance  with U.S.  generally  accepted  auditing
standards. These standards require that we plan and perform the audits to obtain
reasonable assurance as to whether the financial statements are free of material
misstatement.  An audit includes an  examination,  on a test basis,  of evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting  policies used and significant  estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We  believe  that our audit  provide a  reasonable  basis for our
opinion.

In our  opinion,  the  financial  statements  present  fairly,  in all  material
respects,  the financial position of S.C. Domino  International Hotels S.R.L. as
of  December  31,  2002,  and the results of its  operations,  its cash flow and
changes in  shareholders'  equity for the year then ended,  in  conformity  with
International Accounting Standards.

Without qualifying our opinion we draw attention to the following:

         o As of December 31, 2002,  the Company has an  accumulated  deficit of
KROL 90,300,904 and, as of that date, the Company's current  liabilities  exceed
its current assets by KROL  1,116,006,019 and its total  liabilities  exceed its
total assets by KROL  88,550,631.  The ultimate Parent,  B.E.A.  Hotels N.V. has
indicated that it will provide  continuing  financial  support to the Company to
meet all its  obligations  and  liabilities  as and when  the need  arises.  The
financial  statements do not include any adjustments  that might result from the
outcome of this uncertainty.

         o As  described  in  Note  15,  paragraphs  A1 and B,  there  are  some
proceedings  presently  conducted which relate to the cancellation of the tender
on which  privatisation  of  Bucuresti  Turism  was  based and also to a partial
cancellation  of the share  pledge  and  guarantee  agreement  concluded  by and
between  Domino and the bank which  financed the  acquisition of those shares in
December 2000.

On the  basis of legal  advice,  the  management  does not  anticipate  that any
materially  adverse  consequences or negative  outcome will result for Domino or
its subsidiary S.C. Bucuresti S.A. Turism out of these investigations.

Bucharest, Romania
March 17, 2003


<PAGE>


                                AUDITOR'S REPORT

INTRODUCTION

We have audited the 2002 financial statements of Elscint Biomedical
International N.V., Amsterdam. These financial statements are the responsibility
of the entity's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

SCOPE

We conducted our audit in accordance with International and U.S. generally
accepted auditing standards. Those standards require that we plan and perform
our audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

OPINION

In our opinion, the financial statements give a true and fair view of the
financial position of the entity as at 31 December 2002 and of the result for
the year then ended in accordance with International Accounting Standards.

Amsterdam, 27 March 2003

MAZARS PAARDEKOOPER HOFFMAN



Drs. J.D.G. Noach RA


<PAGE>


                                AUDITOR'S REPORT

INTRODUCTION

We have audited the 2002 financial statements of Elscint Holdings & Investment
N.V., Amsterdam. These financial statements are the responsibility of the
entity's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

SCOPE

We conducted our audit in accordance with International and U.S. generally
accepted auditing standards. Those standards require that we plan and perform
our audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

OPINION

In our opinion, the financial statements give a true and fair view of the
financial position of the entity as at 31 December 2002 and of the result for
the year then ended in accordance with International Accounting Standards.


Amsterdam, 27 March 2003

MAZARS PAARDEKOOPER HOFFMAN



Drs. J.D.G. Noach RA


<PAGE>


                                AUDITOR'S REPORT

INTRODUCTION

We have audited the 2002 financial statements of B.E.A. Hotels N.V., Amsterdam.
These financial statements are the responsibility of the entity's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.


SCOPE

We conducted our audit in accordance with International and U.S. generally
accepted auditing standards. Those standards require that we plan and perform
our audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

OPINION

In our opinion, the financial statements give a true and fair view of the
financial position of the entity as at 31 December 2002 and of the result for
the year then ended in accordance with International Accounting Standards.


Amsterdam, 27 March 2003

MAZARS PAARDEKOOPER HOFFMAN



Drs. J.D.G. Noach RA


<PAGE>


                                AUDITOR'S REPORT

INTRODUCTION

We have audited the 2002 financial statements of Victory Enterprises II B.V.,
Amsterdam. These financial statements are the responsibility of the entity's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

SCOPE

We conducted our audit in accordance with International and U.S. generally
accepted auditing standards. Those standards require that we plan and perform
our audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

OPINION

In our opinion, the financial statements give a true and fair view of the
financial position of the entity as at 31 December 2002 and of the result for
the year then ended in accordance with International Accounting Standards.


Amsterdam, 27 March 2003

mazars paardekooper hoffman



Drs. J.D.G. Noach RA


<PAGE>


                                AUDITOR'S REPORT

INTRODUCTION

We have audited the 2002 financial statements of Victoria Hotel and Restaurant
Investment B.V., Amsterdam. These financial statements are the responsibility of
the entity's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

SCOPE

We conducted our audit in accordance with International and U.S. generally
accepted auditing standards. Those standards require that we plan and perform
our audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

OPINION

In our opinion, the financial statements give a true and fair view of the
financial position of the entity as at 31 December 2002 and of the result for
the year then ended in accordance with International Accounting Standards.


Amsterdam, 27 March 2003

MAZARS PAARDEKOOPER HOFFMAN


Drs. J.D.G. Noach RA


<PAGE>


                                AUDITOR'S REPORT

INTRODUCTION

We have audited the 2002 financial statements of Victoria Hotel and Restaurant
Management Services B.V., Amsterdam. These financial statements are the
responsibility of the entity's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

SCOPE

We conducted our audit in accordance with International and U.S. generally
accepted auditing standards. Those standards require that we plan and perform
our audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

OPINION

In our opinion, the financial statements give a true and fair view of the
financial position of the entity as at 31 December 2002 and of the result for
the year then ended in accordance with International Accounting Standards.


Amsterdam, 27 March 2003

MAZARS PAARDEKOOPER HOFFMAN


Drs. J.D.G. Noach RA


<PAGE>


                                AUDITOR'S REPORT

INTRODUCTION

We have audited the 2002 financial statements of Victoria Hotel C.V., Amsterdam.
These financial statements are the responsibility of the entity's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.


SCOPE

We conducted our audit in accordance with International and U.S. generally
accepted auditing standards. These standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

OPINION

In our opinion, the financial statements give a true and fair view of the
financial position of the entity as at 31 December 2002 and of the result for
the year then ended in accordance with International Accounting Standards.


Amsterdam, 27 March 2003

MAZARS PAARDEKOOPER HOFFMAN



Drs. J.D.G. Noach RA


<PAGE>


                                AUDITOR'S REPORT

INTRODUCTION

We have audited the 2002 financial statements of Utrecht Victoria Hotel B.V.,
Utrecht. These financial statements are the responsibility of the entity's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

SCOPE

We conducted our audit in accordance with International and U.S. generally
accepted auditing standards. Those standards require that we plan and perform
our audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

OPINION

In our opinion, the financial statements give a true and fair view of the
financial position of the entity as at 31 December 2002 and of the result for
the year then ended in accordance with International Accounting Standards.


Amsterdam, 27 March 2003

MAZARS PAARDEKOOPER HOFFMAN



Drs. J.D.G. Noach RA


<PAGE>


                                AUDITOR'S REPORT

INTRODUCTION

We have audited the 2002 financial statements of Astrid Hotel Holding B.V.,
Amsterdam. These financial statements are the responsibility of the entity's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

SCOPE

We conducted our audit in accordance with International and U.S. generally
accepted auditing standards. Those standards require that we plan and perform
our audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

OPINION

In our opinion, the financial statements give a true and fair view of the
financial position of the entity as at 31 December 2002 and of the result for
the year then ended in accordance with International Accounting Standards.


Amsterdam, 27 March 2003

MAZARS PAARDEKOOPER HOFFMAN



Drs. J.D.G. Noach RA


<PAGE>


                                AUDITOR'S REPORT

INTRODUCTION

We have audited the 2002 financial statements of Victory Enterprises III B.V.,
Amsterdam. These financial statements are the responsibility of the entity's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

SCOPE

We conducted our audit in accordance with International and U.S. generally
accepted auditing standards. Those standards require that we plan and perform
our audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

OPINION

In our opinion, the financial statements give a true and fair view of the
financial position of the entity as at 31 December 2002 and of the result for
the year then ended in accordance with International Accounting Standards.


Amsterdam, 27 March 2003

MAZARS PAARDEKOOPER HOFFMAN



Drs. J.D.G. Noach RA


<PAGE>


                                AUDITOR'S REPORT

INTRODUCTION

We have audited the 2002 financial statements of Riverbank Hotel Holding B.V.,
Amsterdam. These financial statements are the responsibility of the entity's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

SCOPE

We conducted our audit in accordance with International and U.S. generally
accepted auditing standards. Those standards require that we plan and perform
our audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

OPINION

In our opinion, the financial statements give a true and fair view of the
financial position of the entity as at 31 December 2002 and of the result for
the year then ended in accordance with International Accounting Standards.


Amsterdam, 27 March 2003

MAZARS PAARDEKOOPER HOFFMAN



Drs. J.D.G. Noach RA


<PAGE>


                                AUDITOR'S REPORT

INTRODUCTION

We have audited the 2002 financial statements of Shaw Hotel Holding B.V.,
Amsterdam. These financial statements are the responsibility of the entity's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

SCOPE

We conducted our audit in accordance with International and U.S. generally
accepted auditing standards. Those standards require that we plan and perform
our audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

OPINION

In our opinion, the financial statements give a true and fair view of the
financial position of the entity as at 31 December 2002 and of the result for
the year then ended in accordance with International Accounting Standards.


Amsterdam, 27 March 2003

MAZARS PAARDEKOOPER HOFFMAN



Drs. J.D.G. Noach RA


<PAGE>


                                AUDITOR'S REPORT

INTRODUCTION

We have audited the 2002 financial statements of Victoria London Hotel Holding
B.V., Amsterdam. These financial statements are the responsibility of the
entity's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

SCOPE

We conducted our audit in accordance with International and U.S. generally
accepted auditing standards. Those standards require that we plan and perform
our audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

OPINION

In our opinion, the financial statements give a true and fair view of the
financial position of the entity as at 31 December 2002 and of the result for
the year then ended in accordance with International Accounting Standards.


Amsterdam, 27 March 2003

MAZARS PAARDEKOOPER HOFFMAN



Drs. J.D.G. Noach RA


<PAGE>


                              [LOGO OF ELSCINT NV]

March 3, 2003

To the Shareholders of Elscint NV

REPORT OF INDEPENDENT ACCOUNTANTS

We have audited the accompanying balance sheets of Elscint NV as of December 31,
2002 and the statements of operations, shareholder's equity and comprehensive
income for the year ended December 31, 2002. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

The opening equity has been adjusted by EUR'000 1,929. This adjustment relates
to the reversal in 2002 of a provision for claims amounting to EUR'000 894 and
unrealized exchange differences amounting to EUR'000 1,035.

The unrealized exchange differences noted as per December 31, 2002 are included
as deferred income in the balance sheet instead of being included in the income
statement. This results in an overstatement of equity as per December 31, 2002
by EUR'000 411 or USD'000 435.

However, in our opinion, except for the matters described in the paragraphs
three and four above, the financial statements audited by us present fairly, in
all material respects, the financial position of the Company at December 31,
2002 and the results of its operations, shareholder's equity and comprehensive
income for the years ended December 31, 2002, in conformity with generally
accepted accounting principles in the United States of America.


Yours sincerely,
PrioewaterhouseCoopers & Parthers

A.J. Mackay
Partner


<PAGE>


                   [LOGO OF Elscint (Asia - Pacific) Limited]

REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS OF ELSCINT (ASIA-PACIFIC) LIMITED
FOR THE YEAR ENDED 31 DECMBER 2002

We have audited the accompanying balance sheets and contingent liabilities
information of Elscint (Asia-Pacific) Limited expressed in United States Dollars
as of 31 December 2002 and 2001, and the related statements of income, retained
earnings, and cash flows for the years than ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the forms are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in these financial statements.
An audit also includes assessing the accounting principles used and significant
estimates made by the management, as well as evaluating the overall financial
statements presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, the accompanying financial statements referred to above present
fairly, in all material respects, the financial position of Elscint
(Asia-Pacific) Limited as of 31 December 2002 and 2001, and the contingent
liabilities information and the results of its operations and its cash flows for
the years than ended in accordance with International Accounting Standards.


PricewaterhouseCoopers
Certified Public Accountants
Hong Kong 17 January 2003


<PAGE>


                              REPORT OF INDEPENDENT
ACCOUNTANTS TO THE SHAREHOLDERS OF PRODUTOS MEDICO - HOSPITALARES ELSCINT LTDA.

             [LOGO OF PRODUTOS MEDICO - HOSPITALARES ELSCINT LTDA.]

We have audited the accompanying balance sheets of Produtos Medico -
Hospitalares Elscint Ltda. (the "Company") As of December 31, 2002 and 2001 and
the statements of operations, shareholders equity and comprehensive income and
cash flows for the years ended December 31, 2002, 2001 and 2000. These financial
statements are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with auditing statements generally accepted
in the united states of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the management, as well as evaluating the overall
financial statement presentation. We believe that our audit provide a reasonable
basis for our opinion.

In our opinion, the financial statement referred to above present fairly, in all
material respects, the financial position of the company at December 31, 2002
and 2001 and the results of its operation, shareholders equity and comprehensive
income and its cash flows for the years ended December 31, 2002, 2001 and 2000,
in conformity with accounting principles generally accepted in the united states
of America.

CERTIFIED PUBLIC ACCOUNTANTS

EDUARDO BLANCHESSI

BRISK AUDITORES S/C
FEBRUARY 10, 2003


<PAGE>


                         REPORT OF INDEPENDENT AUDITORS
                         ------------------------------
                             TO THE SHAREHOLDERS OF
                             ----------------------
                            ELSCINT BIO-MEDICAL LTD.
                            ------------------------

We have audited the  accompanying  balance  sheets of ELSCINT  BIO-MEDICAL  LTD.
("the  Company") as of December 31, 2002 and 2001 and the  consolidated  balance
sheets as of this date and the statements of income,  changes in equity and cash
flows - of the company  and  consolidated-  for the two years then ended.  These
financial  statements are the responsibility of the Company's Board of Directors
and management.  Our  responsibility is to express an opinion on these financial
statements based on our audits.

We did not audit the financial statements of certain consolidated  subsidiaries,
whose assets  constitute 99.5% and 98% of the total  consolidated  assets, as of
December  31, 2002 and 2001  respectively.  The  financial  statements  of those
subsidiaries were audited by other auditors whose reports thereon were furnished
to us, and our  opinion,  insofar as it relates  to the  amounts  included  with
respect  to those  subsidiaries,  is based  solely on the  reports  of the other
auditors.

We conducted our audit in accordance with generally  accepted auditing standards
in the United States and in Israel  ,including  those prescribed by the Auditors
Regulation (Auditors Mode of Performance),1973.  Those standards require that we
plan and  perform  the audit in order to obtain  reasonable  assurance  that the
financial  statements  are free of  material  misstatement.  An  audit  includes
examining ,on a test basis,  evidence  supporting the amounts and disclosures in
the  financial  statements.  An audit also  includes  assessing  the  accounting
principles  used and  significant  estimates  made by the Board of Directors and
management of the Company, as well as evaluating the overall financial statement
presentation.  We believe  that our audit  provides a  reasonable  basis for our
opinion.

In our  opinion,  based on our audits and the  reports  of other  auditors,  the
abovementioned  financial  statements  present fairly, in all material respects,
the  financial  position - of the company and  consolidated-  as of December 31,
2002 and 2001 and the  results of  operations,  changes in equity and cash flows
for the two years then ended, in conformity with accounting principles generally
accepted in Israel. These principles differ in certain significant respects from
accounting principles generally accepted in the United States. The effect of the
material  differences in the determination of the financial  statements is shown
in an attached appendix to the financial statements.

As explained in Note 2, the financial statements have been prepared on the basis
of the historical cost adjusted to the changes in the general  purchasing  power
of the Israeli currency.

This financial  statements are solely for the purpose of their  consolidation in
the financial statements of Elscint Ltd.

BRIGHTMAN ALMAGOR & CO.
CERTIFIED PUBLIC ACCOUNTANTS (ISRAEL)

Tel Aviv April 2, 2003


<PAGE>


Reviseurs d'Entreprises                     Tel:  +32 2 800 20 00
Pegasus Park                                Fax:  +32 2 800 20 11
Berkenlaan 8b                               http://www.deloitte.be

B-1831 Diegem
Belgium

            REPORT OF THE INDEPENDENT AUDITOR TO THE SHAREHOLDERS OF

                                ASTRIDPLAZA N.V.

                                 Astridplein 1-7

                            2018 Antwerpen - Belgium

                               Date: 28 March 2003

We have audited the accompanying balance sheets of ASTRIDPLAZA N.V. ("the
Company") as of 31 December 2002, and 2001 and the statements of income, the
statements of changes in shareholders' equity and the statements of cash flows
of the company for each of the three years in the period ended December 31,
2002. These financial statements are the responsibility of the Company's Board
of Directors and management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audit in accordance with international and U.S. generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by the Board of Directors and management of the Company, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, based on our audit, the above mentioned financial statements,
which show a balance sheet total of (euro) 50.250 (000) and a loss of (euro) 922
(000), present fairly, in conformity with international financial reporting
standards, in all material respects, the Company's financial position as of
December 31, 2002 and 2001 and the results of operations, changes in
shareholders' equity and cash flows of the Company for each of the three years
in the period ended December 31, 2002.

DELOITTE & TOUCHE
CERTIFIED PUBLIC ACCOUNTANTS
REPRESENTED BY ANDRE GEEROMS


<PAGE>



           ITEM 19. -- EXHIBITS

         (a)      Index to Consolidated Financial Statements

                                                                         Page

         o  Independent Auditor's Report                                    2
         o  Consolidated Balance Sheets for the years ended
             December 31, 2002 and 2001                                   3-4
         o  Consolidated Statements of Operations for the years
             ended December 31, 2002, 2001 and 2000                       5-6
         o  Consolidated Statements of  Shareholders' Equity for
             the years ended December 31, 2002, 2001 and 2000               7
         o  Consolidated Statements of Cash Flows for the years
             ended December 31 , 2002, 2001 and 2000                     8-11
         o  Notes to Consolidated Financial Statements                  12-86
         o  Appendix                                                       87
         o  Reports of Auditors of subsidiary and investee companies

         (b)    Exhibits

1.1(1)      Memorandum of Association

1.2(1)      Articles of Association

1.3(2)^     Notice dated October 10, 2000 sent by the  Registrant to the Israeli
            Companies  Registrar with respect to an amendment to the Articles of
            Association.

4.1(3)      Loan agreement among, inter alia, Depfa Bank AG, Victoria Hotel C.V.
            and Utrecht  Victoria Hotel B.V. dated March 24, 1999.

4.2(3)      Hotel management  agreement between Euston Road Hotel Operators Ltd.
            and Park Plaza Europe Ltd. dated December 1997.

4.3(3)      Management  agreement  between  Victoria  Hotel C.V.  and Park Plaza
            Hotel Europe, Ltd.  (previously  Prestige Hotels International Ltd.)
            dated October 4, 1993.

4.4(3)      Management  support and  sub-license  agreement  between Astrid Park
            Plaza N.V. and Park Plaza Hotels Europe Ltd. dated April 15, 1997.

4.5(2)      Loan agreement  dated December 21, 2000 with Bank Hapoalim B.M. with
            respect to the financing of the Victoria Park Plaza Hotel.

4.6(2)^     Loan  facility   agreement   dated  October  23,  2000  between  the
            Registrant  and Bank  Hapoalim  B.M.  with respect to a $110 million
            line of credit.

4.7(2)^     Development  agreement dated December 17, 2000 with the Israeli Land
            Administration with respect to the Monfort Project.

4.8(4)^     Agreement  dated April 14, 2002  between SLS Sails Ltd. and C.D.P.M.
            Kft. for the completion of the construction  works of the commercial
            and entertainment center.

8.1         List of subsidiaries

10.1(5)     Certification of the President of the Registrant pursuant to Section
            906 of the Sarbanes-Oxley Act of 2002.

10.2(5)     Certification of Chief Financial Officer of the Registrant  pursuant
            to   Section    906   of   the    Sarbanes-Oxley    Act   of   2002.

-------------------------------

(1)  Previously filed as an exhibit to Elscint's  Registration Statement on Form
     F-1,  file  No.  33-43258,  filed  with  the SEC on  October  8,  1991  and
     incorporated by reference herein.

(2)  Previously  filed as an exhibit to Elscint's Annual Report on Form 20-F for
     the year ended December 31, 2000, file No.  2-44872,  filed with the SEC on
     July 10, 2001 and incorporated by reference herein.

                                      -89-
<PAGE>

(3)  Previously  filed as an Exhibit to Elscint's Annual Report on Form 20-F for
     the year ended December 31, 1999, file No.  2-44872,  filed with the SEC on
     June 2, 2000 and incorporated by reference herein.

(4)  Previously  filed as an exhibit to Elscint's Annual Report on Form 20-F for
     the year ended December 31, 2001, file No.  2-44872,  filed with the SEC on
     June 28, 2002 and incorporated by reference herein.

(5)  This  document is being  furnished in  accordance  with SEC  Releases  Nos.
     33-8212 and 34-47551.

 ^   Translation from Hebrew.






                                      -90-
<PAGE>



                                   SIGNATURES

         The registrant  hereby  certifies that it meets all of the requirements
for  filing  on Form  20-F  and  that is has  duly  caused  and  authorized  the
undersigned to sign this annual report on it behalf.

                                            By:  /s/ Rachel Lavine
                                                 -------------------------------
                                                 Name: Rachel Lavine
                                                 Title: President

Date: June 30, 2003





                                      -91-
<PAGE>


                                    CERTIFICATION

         I, Rachel Lavine, certify that:

         1. I have reviewed this annual report on Form 20-F of Elscint Limited;

         2. Based on my  knowledge,  this  annual  report  does not  contain any
untrue  statement of a material fact or omit to state a material fact  necessary
to make the  statements  made,  in light of the  circumstances  under which such
statements  were made, not misleading with respect to the period covered by this
annual report;

         3. Based on my knowledge, the financial statements, and other financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

         a.  designed  such  disclosure  controls and  procedures to ensure that
material  information  relating to the  registrant,  including its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this annual report is being prepared;

         b. evaluated the effectiveness of the registrant's  disclosure controls
and  procedures  as of a date  within 90 days prior to the  filing  date of this
annual report (the "Evaluation Date"); and

         c.  presented  in  this  annual  report  our   conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

         5. The  registrant's  other  certifying  officers and I have disclosed,
based on our most recent evaluation,  to the registrant's auditors and the audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent function):

         a. all significant  deficiencies in the design or operation of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

         b. any fraud,  whether or not  material,  that  involves  management or
other  employees  who  have a  significant  role  in the  registrant's  internal
controls; and

         6. The registrant's  other certifying  officers and I have indicated in
this annual  report  whether or not there were  significant  changes in internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: June 30, 2003

                                                 /s/ Rachel Lavine
                                                 -------------------------------
                                                 Rachel Lavine
                                                 President

                                      -92-
<PAGE>


                                  CERTIFICATION

         I, Uri Levin, certify that:

         1. I have reviewed this annual report on Form 20-F of Elscint Limited;

         2. Based on my  knowledge,  this  annual  report  does not  contain any
untrue  statement of a material fact or omit to state a material fact  necessary
to make the  statements  made,  in light of the  circumstances  under which such
statements  were made, not misleading with respect to the period covered by this
annual report;

         3. Based on my knowledge, the financial statements, and other financial
information  included  in this annual  report,  fairly  present in all  material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this annual report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

         a.  designed  such  disclosure  controls and  procedures to ensure that
material  information  relating to the  registrant,  including its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this annual report is being prepared;

         b. evaluated the effectiveness of the registrant's  disclosure controls
and  procedures  as of a date  within 90 days prior to the  filing  date of this
annual report (the "Evaluation Date"); and

         c.  presented  in  this  annual  report  our   conclusions   about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

         5. The  registrant's  other  certifying  officers and I have disclosed,
based on our most recent evaluation,  to the registrant's auditors and the audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent function):

         a. all significant  deficiencies in the design or operation of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

         b. any fraud,  whether or not  material,  that  involves  management or
other  employees  who  have a  significant  role  in the  registrant's  internal
controls; and

         6. The registrant's  other certifying  officers and I have indicated in
this annual  report  whether or not there were  significant  changes in internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date: June 30, 2003

                                                 /s/ Uri Levin
                                                 -------------------------------
                                                 Uri Levin
                                                 Chief Financial Officer

                                      -93-
<PAGE>


                                  EXHIBIT INDEX

1.1(1)      Memorandum of Association

1.2(1)      Articles of Association

1.3(2)^     Notice dated October 10, 2000 sent by the  Registrant to the Israeli
            Companies  Registrar with respect to an amendment to the Articles of
            Association.

4.1(3)      Loan agreement among, inter alia, Depfa Bank AG, Victoria Hotel C.V.
            and Utrecht  Victoria Hotel B.V. dated March 24, 1999.

4.2(3)      Hotel management  agreement between Euston Road Hotel Operators Ltd.
            and Park Plaza Europe Ltd. dated December 1997.

4.3(3)      Management  agreement  between  Victoria  Hotel C.V.  and Park Plaza
            Hotel Europe, Ltd.  (previously  Prestige Hotels International Ltd.)
            dated October 4, 1993.

4.4(3)      Management  support and  sub-license  agreement  between Astrid Park
            Plaza N.V. and Park Plaza Hotels Europe Ltd. dated April 15, 1997.

4.5(2)      Loan agreement  dated December 21, 2000 with Bank Hapoalim B.M. with
            respect to the financing of the Victoria Park Plaza Hotel.

4.6(2)^     Loan  facility   agreement   dated  October  23,  2000  between  the
            Registrant  and Bank  Hapoalim  B.M.  with respect to a $110 million
            line of credit.

4.7(2)^     Development  agreement dated December 17, 2000 with the Israeli Land
            Administration with respect to the Monfort Project.

4.8(4)^     Agreement  dated April 14, 2002  between SLS Sails Ltd. and C.D.P.M.
            Kft. for the completion of the construction  works of the commercial
            and entertainment center.

8.1         List of subsidiaries

10.1(5)     Certification of the President of the Registrant pursuant to Section
            906 of the Sarbanes-Oxley Act of 2002.

10.2(5)     Certification of Chief Financial Officer of the Registrant  pursuant
            to   Section    906   of   the    Sarbanes-Oxley    Act   of   2002.
-------------------------------

(1)  Previously filed as an exhibit to Elscint's  Registration Statement on Form
     F-1,  file  No.  33-43258,  filed  with  the SEC on  October  8,  1991  and
     incorporated by reference herein.

(2)  Previously  filed as an exhibit to Elscint's Annual Report on Form 20-F for
     the year ended December 31, 2000, file No.  2-44872,  filed with the SEC on
     July 10, 2001 and incorporated by reference herein.

(3)  Previously  filed as an Exhibit to Elscint's Annual Report on Form 20-F for
     the year ended December 31, 1999, file No.  2-44872,  filed with the SEC on
     June 2, 2000 and incorporated by reference herein.

(4)  Previously  filed as an exhibit to Elscint's Annual Report on Form 20-F for
     the year ended December 31, 2001, file No.  2-44872,  filed with the SEC on
     June 28, 2002 and incorporated by reference herein.

(5)  This  document is being  furnished in  accordance  with SEC  Releases  Nos.
     33-8212 and 34-47551. Translation from Hebrew.

 ^   Translation from Hebrew.
                                      -94-